Skip to main content

Full text of "Principles Of Economics"

See other formats







PRINCIPLES 

OF 

ECONOMICS 



MACMILLAN AND CO., Limited 

LONDON • BOMBAY • CALCUTTA * MADRAS 
MELBOUR.NE 

THE MACMILLAN COMPANY 

NEW YORK • BOSTON • CHICAC.O 
DALLAS • ATLANTA • SAN FRANCISCO 

THE MACMILLAN COMPANY 
OF CANADA, LIMITED 


TORONTO 



PRINCIPLES 


OF 

ECONOMICS 

A?! introductory volume 


BY 

ALFRED MARSHALL 


EIGHTH EDITION 


Natura non facit sal turn 


MACMILLAN AND CO., LIMITED 
ST MARTIN’S STREET, LONDON 

I 930 



COPYRIGHT 


First Edition 1890. 
'Third Edition 1895. 
Fifth Edition 1907. 
Seventh Edition 1916. 
Reprinted 1922, 


Second Edition 1891. 
Fourth Edition 189S. 
Sixth Edition 1910. 
Eighth Edition 1920. 
T925, 1927, 1930- 


PRINTEO IN GREAT BRITAIN 



PREFACE TO THE FIRST EDITION. 


Economic conditions are constantly changing, and each 
generation looks at its own problems in its own way. In 
England, as well as on the Continent and in America, Eco- 
nomic studies are being more vigorously pursued now than 
ever before; but all this activity has only shown the more 
clearly that Economic science is, and must be, one of slow and 
continuous growth. Some of the best work of the present 
generation has indeed appeared at first sight to be antagonistic 
to that of earlier writers; but when it has had time to settle 
down into its proper place, and its rough edges have been 
worn away, it has been found to involve no real breach of 
continuity in the development of the science. The new doctrines 
have supplemented the older, have extended, developed, and 
sometimes corrected them, and often have given them a different 
tone by a new distribution of emphasis; but very seldom have 
subverted them. 

The present treatise is an attempt to present a modern 
version of old doctrines with the aid of the new work, and with 
reference to the new problems, of our own age. Its general 
scope and purpose are indicated in Book I. ; at the end of which 
a short account is given of what are taken to be the chief 
subjects of economic inquiry, and the chief practical issues on 
which that inquiry has a bearing. In accordance with English 
traditions, it is held that the function of the science is to collect, 
arrange and analyse economic facts, and to apply the know- 
ledge, gained by observation and experience, in determining 
what are likely to be the immediate and ultimate effects of 
various groups of causes; and it is held that the Laws of 



vi 


PREFACE TO THE FIRST EDITION 


Economics are statements of tendencies expressed in the 
indicative mood, and not ethical precepts in the imperative. 
Economic laws and reasonings in fact are merely a part of the 
material which Conscience and Common-sense have to turn to 
account in solving practical problems, and in laying down 
rules which may be a guide in life. 

But ethical forces are among those of which the economist 
has to take account. Attempts have indeed been made to 
construct an abstract science with regard to the actions of an 
‘"economic man,” who is under no ethical influences and who 
pursues pecuniary gain warily and energetically, but mechanic- 
ally and selfishly. But they have not been successful, nor 
even thoroughly carried out. For they have never really 
treated the economic man as perfectly selfish : no one could be 
relied on better to endure toil and sacrifice with the unselfish 
desire to make provision for his family; and his normal motives 
have always been tacitly assumed to include the family afiec- 
tions. But if they include these, why should they not include 
all other altruistic motives the action of which is so far uniform 
in any class at any time and place, that it can be reduced to 
general rule? There seems to be no reason; and in the present 
book normal action is taken to be that which may be expected, 
under certain conditions, from the members of an industrial 
group ; and no attempt is made to exclude the influence of any 
motives, the action of which is regular, merely because they 
are altruistic. If the book has any special character of its own, 
that may perhaps be said to lie in the prominence which it gives 
to this and other applications of the Principle of Continuity. 

This principle is applied not only to the ethical quality 
of the motives by which a man may be influenced in choosing 
his ends, but also to the sagacity, the energy and the enterprise 
with which he pursues those ends. Thus stress is laid on the 
fact that there is a continuous gradation from the actions of 
“city men,” which are based on deliberate and far-reaching 



PREFACE TO THE FIRST EDITION vii 

calculations, and are executed with vigour and ability, to those 
of ordinary people who have neither the power nor the will to 
conduct their affairs in a business-like way. The normal 
willingness to save, the normal willingness to undergo a certain 
exertion for a certain pecuniary reward, or the normal alertness 
to seek the best markets in which to buy and sell, or to search 
out the most advantageous occupation for oneself or for one’s 
children — all these and similar phrases must be relative to the 
members of a particular class at a given place and time: but, 
when that is once understood, the theory of normal value is 
applicable to the actions of the unbusiness-like classes in the 
same way, though not with the same precision of detail, as to 
those of the merchant or banker. 

And as there is no sharp line of division between conduct 
which is normal, and that which has to be provisionally 
neglected as abnormal, so there is none between normal values 
and current ” or ‘‘ market ” or occasional ’’ values. The latter 
are those values in which the accidents of the moment exert 
a preponderating influence; while normal values are those 
which would be ultimately attained, if the economic conditions 
under view had time to work out undisturbed their full effect. 
But there is no impassable gulf between these two ; they shade 
into one another by continuous gradations. The values which 
we may regard as normal if we are thinking of the changes from 
hour to hour on a Produce Exchange, do but indicate current 
variations with regard to the year’s history: and the normal 
values with reference to the year’s history are but current values 
with reference to the history of the century. For the element 
of Time, which is the centre of the chief difficulty of almost 
every economic problem, is itself absolutely continuous: 
Nature knows no absolute partition of time into long periods 
and short; but the two shade into one another by imperceptible 
gradations, and what is a short period for one problem, is a 
long period for another. 



Vlll 


PREFACE TO THE FIRST EDITION 


Thus for instance the greater part, though not the whole, 
of the distinction between Rent and Interest on capital turns 
on the length of the period which we have in view. That which 
is rightly regarded as interest on ‘"free” or ‘‘floating” capital, 
or on new investments of capital, is more properly treated as 
a sort of rent — a Quasi-rent it is called below — on old invest- 
ments of capital. And there is no sharp line of division between 
floating capital and that which has been “sunk” for a special 
branch of production, nor between new and old investments 
of capital; each group shades into the other gradually. And 
thus even the rent of land is seen, not as a thing by itself, but 
as the leading species of a large genus; though indeed it has 
peculiarities of its own which are of vital importance from the 
point of view of theory as well as of practice. 

Again, though there is a sharp line of division between man 
himself and the appliances which he uses; and though the 
supply of, and the demand for, human efforts and sacrifices 
have peculiarities of their own, which do not attach to the 
supply of, and the demand for, material goods; yet, after all, 
these material goods are themselves generally the result of 
human efforts and sacrifices. The theories of the values of 
labour, and of the things made by it, cannot be separated: 
they are parts of one great whole; and what differences there 
are between them even in matters of detail, turn out on inquiry 
to be, for the most part, differences of degree rather than of 
kind. As, in spite of the great differences in form between birds 
and quadrupeds, there is one Fundamental Idea ru nnin g 
through all their frames, so the general theory of the equi- 
librium of demand and supply is a Fundamental Idea running 
through the frames of all the various parts of the central 
problem of Distribution and Exchange^. 

^ In the Economics of Industry published by my wife and myself in 1879 an 
endeavour was made to show the nature of this fundamental unity. A short pro- 
visional account of the relations of demand and supply was given before the theory 
of Distribution; and then this one scheme of general reasoning was applied in 



PREFACE TO THE FIRST EDITION 


IX 


Another application of the Principle of Continuity is to 
the use of terms. There has always been a temptation to classify 
economic goods in clearly defined groups, about which a number 
of short and sharp propositions could be made, to gratify at 
once the student’s desire for logical precision, and the popular 
liking for dogmas that have the air of being profound and are 
yet easily handled. But great mischief seems to have been 
done by yielding to this temptation, and drawing broad artificial 
lines of division where Nature has made none. The more 
simple and absolute an economic doctrine is, the greater wifi 
be the confusion which it brings into attempts to apply economic 
doctrines to practice, if the dividing lines to which it refers 
cannot be found in real Life. There is not in real life a clear line 
of division between things that are and are not Capital, or 
that are and are not Necessaries, or again between labour that 
is and is not Productive. 

The notion of continuity with regard to development is 
common to all modem schools of economic thought, whether 
the chief influences acting on them are those of biology, as 
represented by the writings of Herbert Spencer; or of history 
and philosophy, as represented by Hegel’s Philosophy of 
History, and by more recent ethico-historical studies on the 
Continent and elsewhere. These two kinds of influences have 
affected, more than any other, the substance of the views 
expressed in the present book; but their form has been most 
affected by mathematical conceptions of continuity, as repre- 
sented in Cournot’s Prindpes Mathematiques de la TJdorie des 
Richesses. He taught that it is necessary to face the difficulty 
of regarding the various elements of an economic problem, — 
not as determining one another in a chain of causation, A 
determining B, B determining C, and so on — but as all mutually 

succession to the earning of labour, the interest on capital and the Earnings of 
Management. But the drift of this arrangement was not made sufficiently clear; 
and on Professor Nicholson's suggestion, more prominence has been given to it in 
the present volume. 



PREFACE TO THE FIR3T EDITION 


deteiminiDg one another. Nature’s action is complex; and 
nothing is gained in the long run by pretending that it is simple, 
and trying to describe it in a series of elementary propositions. 

Under the guidance of Cournot, and in a less degree of 
von Thiinen, I was led to attach great importance to the fact 
that our observations of nature, in the moral as in the physical 
world, relate not so much to aggregate quantities, as to incre> 
ments of quantities, and that in particular the demand for a 
thing is a continuous function, of which the “marginal” 
increment is, in stable equilibrium, balanced against the 
corresponding increment of its cost of production. It is not 
easy to get a clear full view of continuity in this aspect without 
the aid either of mathematical symbols or of diagrams. The 
use of the latter requires no special knowledge, and they often 
express the conditions of economic life more accurately, as 
well as more easily, than do mathematical symbols; and there- 
fore they have been applied as supplementary illustrations 
in the footnotes of the present volume. The argument in the 
text is never dependent on them; and they may be omitted; 
but experience seems to show that they give a firmer grasp 
of many important principles than can be got without their 
aid; and that there are many problems of pure theory, which 
no one who has once learnt to use diagrams will willingly handle 
in any other way. 

The chief use of pure mathematics in economic questions 
seems to be in helping a person to write down quickly, shortly 
and exactly, some of his thoughts for his own use: and to 
make suxe that he has enough, and only enough, premisses for 
his conclusions (i.e. that his equations are neither more nor 
less in number than his unknowns). But when a great many 
symbols have to be used, they become very laborious to any 

^ The tonn “zauginal'* Incitement I bcoiowod from ron Thiinea’a 

'SS, •nd it i* now commonly used by German economists. When 
' Tbeoiy a^^earod, I adopted bis word **Snal*’; but 1 have boon gradually 
conTinced that ** marginal *’ is the better. 



PREFACE TO THE FIRST EDITION 


XI 


one but the writer himself. And though Cournot’s genius must 
give a new mental activity to everyone who passes through his 
hands, and mathematicians of calibre similar to his may use 
their favourite weapons in clearing a way for themselves to the 
centre of some of those difficult problems of economic theory, 
of which only the outer fringe has yet been touched; yet it 
seems doubtful whether any one spends his time well in reading 
lengthy translations of economic doctrines into mathematics, 
that have not been made by himself. A few specimens of those 
applications of mathematical language which have proved most 
useful for my own purposes have, however, been added in an 
Appendix. 

September, 1890. 



PREFACE TO THE EIGHTH EDITION. 


This edition is a reprint of the seventh, which was almost a 
reprint of the sixth, the only changes being in small matters 
of detail: the Preface is almost the same as in the seventh 
edition. 

It is now thirty years since the first edition of this volume 
implied a promise that a second volume, completing the 
treatise, would appear within a reasonable time. But I had 
laid my plan on too large a scale; and its scope widened, es- 
pecially on the realistic side, with every pulse of that Industrial 
Revolution of the present generation, which has far outdone 
the changes of a century ago, in both rapidity and breadth of 
movement. So ere long I was compelled to abandon my hope 
of completing the work in two volumes. My subsequent plans 
were changed more than once; partly by the course of events, 
partly by my other engagements, and the decline of my strength. 

Industry and Trade, published in 1919, is in effect a con- 
tinuation of the present volume. A third (on Trade, Finance 
and the Industrial Future) is far advanced. The three volumes 
are designed to deal with all the chief problems of economics, 
so far as the writer’s power extends. 

The present volume therefore remains as a general intro- 
duction to the study of economic science; similar in some 
respects, though not in all, to that of volumes on Foundations 
(Ghrundlagen), which Roscher and some other economists have 
put in the forefront of groups of semi-independent volumes on 
economics. It avoids such special topics as currency and the 
organization of markets : and, in regard to such matters as the 



PREFACE TO THE EIGHTH EDITION xiii 

structure of industry, employment, and the problem of wages, 
it deals mainly with normal conditions. 

Economic evolution is gradual. Its progress is sometimes 
arrested or reversed by political catastrophes: but its forward 
movements are never sudden; for even in the Western world 
and in Japan it is based on habit, partly conscious, partly 
imconscious. And though an inventor, or an organizer, or a 
financier of genius may seem to have modified the economic 
structure of a people almost at a stroke; yet that part of his 
influence, which has not been merely superficial and transitory, 
is foimd on inquiry to have done little more than bring to a 
head a broad constructive movement which had long been in 
preparation. Those manifestations of nature which occur most 
frequently, and are so orderly that they can be closely watched 
and narrowly studied, are the basis of economic as of most 
other scientific work ; while ‘those which are spasmodic, in- 
frequent, and difficult of observation, are commonly reserved 
for special examination at a later stage: and the motto Natura 
non facit saltum is specially appropriate to a volume on Eco- 
nomic Foundations. 

An illustration of this contrast may be taken from the 
distribution of the study of large businesses between the present 
volume and that on Industry and Trade, When any branch of 
industry offers an open field for new firms which rise to the 
first rank, and perhaps after a time decay, the normal cost of 
production in it can be estimated with reference to ‘‘a repre- 
sentative firm,” which enjoys a fair share both of those internal 
economies which belong to a well- organized individual business, 
and of those general or external economies which arise out of 
the collective organization of the district as a whole. A study 
of such a firm belongs properly to a volume on Foundations. 
So also does a study of the principles on which a firmly estab- 
lished monopoly, in the hands of a Government department or 
a large railway, regulates its prices with main reference indeed 



XiV 


PREFACE TO THE EIGHTH EDITION 


to its own revenue; but also with more or less consideration 
for the wellbeing of its customers. 

But normal action falls into the backgroimd, when Trusts 
are striving for the mastery of a large market; when com- 
munities of interest are being made and unmade; and, above 
all, when the policy of any particular establishment is likely 
to be governed, not with a single eye to its own business success, 
but in subordination to some large stock-exchange manoeuvre, 
or some campaign for the control of markets. Such matters can- 
not be fitly discussed in a volume on Foundations: they belong 
to a volume dealing with some part of the Superstructure. 

The Mecca of the economist lies in economic biology rather 
than in economic dynamics. But biological conceptions are 
more complex than those of mechanics; a volume on Founda- 
tions must therefore give a relatively large place to mechanical 
analogies; and frequent use is made of the term ''equilibrium,’’ 
which suggests something of statical analogy. This fact, com- 
bined with the predominant attention paid in the present volume 
to the normal conditions of life in the modern age, has sug- 
gested the notion that its central idea is "statical,” rather than 
"dynamical.” But in fact it is concerned throughout with the 
forces that cause movement: and its key-note is that of 
dynamics, rather than statics. 

The forces to be dealt with are however so numerous, that 
it is best to take a few at a time; and to work out a number of 
partial solutions as auxiliaries to our main study. Thus we 
begin by isolating the primary relations of supply, demand and 
price in regard to a particular commodity. We reduce to 
inaction all other forces by the phrase "other things being 
equal” : we do not suppose that they are inert, but for the tiihe 
we ignore their activity. This scientific device is a great deal 
older than science: it is the method by which, consciously or 
unconsciously, sensible men have dealt from time immemorial 
with every difificult problem of ordinary life. 



PREFACE TO THE EIGHTH EDITION 


XV 


In the second stage more forces are released from the 
hTpothetical slumber that had been imposed on them : changes 
in the conditions of demand for and supply of particular groups 
of commodities come into play; and their complex mutual 
interactions begin to be observed. Gradually the area of the 
dynamical problem becomes larger; the area covered by pro- 
visional statical assumptions becomes smaller; and at last is 
reached the great central problem of the Distribution of the 
National Dividend among a vast number of different agents 
of production. Meanwhile the dynamical principle of ‘'Sub- 
stitution” is seen ever at work, causing the demand for, and 
the supply of, any one set of agents of production to be 
influenced through indirect channels by the movements of 
demand and supply in relation to other agents, even though 
situated in far remote fields of industry. 

The main concern of economics is thus with human beings 
who are impelled, for good and evil, to change and progress. 
Fragmentary statical hypotheses wre used as temporary 
auxiliaries to dynamical — or rather biological — conceptions: 
but the central idea of economics, even when its Foundations 
alone are under discussion, must be that of living force and 
movement. 

There have been stages in social history in which the special 
features of the income yielded by the ownership of land have 
dominated human delations: and perhaps they may ‘again 
assert a pre-eminence. But in the present age, the opening 
out of new countries, aided by low transport charges on land 
and sea, has almost suspended the tendency to Diminishing 
Return, in that sense in which the term was used by Malthus 
and Ricardo, when the English labourers^ weekly wages were 
often less than the price of half a bushel of good wheat. And yet, 
if the growth of population should continue for very long even 
at a quarter of its present rate, the aggregate rental values of 
land for all its uses (assumed to be as free as now from restraint 



XVI 


PREFACE TO THE EIGHTH EDITION 


by public authority) may again exceed the aggregate of incomes 
derived from all other forms of material property; even though 
that may then embody twenty times as much labour as now. 

Increasing stress has been laid in successive editions up 
to the present on these facts; and also on the correlated fact 
that in every branch of production and trade there is a margin, 
up to which an increased application of any agent will be 
profitable under given conditions; but beyond which its further 
application will yield a diminishing return unless there be some 
increase of demand accompanied by an appropriate increase 
of other agents of production needed to co-operate with it. And 
a similar increasing stress has been laid on the complementary 
fact that this notion of a margin is not uniform and absolute : 
it varies with the conditions of the problem in hand, and in 
particular with the period of time to which reference is being 
made. The rules are universal that, (1) marginal costs do not 
govern price; (2) it is only at the margin that the action of 
those forces which do govern price can be made to stand out 
in clear light; and (3) the margin, which must be studied in 
reference to long periods and enduring results, differs in charac- 
ter as well as in extent from that which must be studied in 
reference to short periods and to passing fluctuations. 

Variations in the nature of marginal costs are indeed 
largely responsible for the well-known fact that those effects 
of an economic cause, which are not easily "traced, are frequently 
more important than, and in the opposite direction to, those 
which lie on the surface and attract the eye of the casual 
observer. This is one of those fundamental difficulties which 
have underlain and troubled the economic analysis of past 
times; its full significance is perhaps not yet generally recog- 
nized, and much more work may need to be done before it is 
fully mastered. 

The new analysis is endeavouring gradually and tentatively 
to bring over into economics, as far as the widely different 



PREFACE TO THE EIGHTH EDITION 


XVll 


nature of the material will allow, those methods of ‘the science 
of small increments (commonly called the difEerential calculus) 
to which man owes directly or indirectly the greater part of 
the control that he has obtained in recent times over physical 
nature. It is still in its infancy; it has no dogmas, and no 
standard of orthodoxy. It has not yet had time to obtain a 
perfectly settled terminology; and some difEerences as to the 
best use of terms and other subordinate matters are but a sign 
of healthy life. In fact however there is a remarkable harmony 
and agreement on essentials among those who are working 
constructively by the new method; and especially among such 
of them as have served an apprenticeship in the simpler and 
more definite, and therefore more advanced, problems of 
physics. Ere another generation has passed, its dominion over 
that limited but important field of economic inquiry to which 
it is appropriate will probably be no longer in dispute. 

My wife has aided and advised me at every stage of suc- 
cessive editions of this volume. Each one of them owes a great 
deal to her suggestions, her care, and her judgment. Dr Keynes 
and Mr L. L. Price read through the proofs of the first edition 
and helped me greatly; and Mr A. W. Flux also has done much 
for me. Among the many who have helped me on special points, 
in some cases in regard to more than one edition, I would 
specially mention Professors Ashley, Caiman, Edgeworth, 
Haverfield, Pigou and Taussig; Dr Berry, Mr C. R. Fay, and 
the late Professor Sidgwick. 


Balliol Croft, 

6, Madinoley Road, Cambridge, 
October 1920 




CONTENTS 


BOOK 1. 

PRELIMINARY SURVEY. 

Chapter I, Introdnction. § !• Economics is both a study of wealth and 
a branch of the study of man. The history of the world has been shaped 
by religious and economic forces. § 2. The question whether poverty is 
necessary gives its highest interest to economics. § 3. The science is in 
the main of recent growth. § 4. Competition may be constructive or 
destructive: even when constructive it is less beneficent than co-operation. 
But the fundamental characteristics of modem business are freedom of 
industry and enterprise, self-reliance, and forethought. § 6. Bough sketches 
of the growth of these characteristics and of economic science haye been 
transferred from this Book to Appendices A and B. • . pp. 1 — 13 

Chapter II. The substance of economics. § 1* Economics is mainly 
concerned with incentives to action and resistances to action, the quantity 
of which can be roughly measured by money. The measurement refers 
only to the quantities of forces: the qualities of motives, whether noble or 
ignoble, are from their very nature incapable of measurement. § 2. Reckon- 
ing is made for the greater force measured by a shilling in the case of a 
poor man than a rich: but economics seeks generally for broad results that 
are little affected by individual peculiarities. § 3. Habit itself is largely 
based on deliberate choice. §§ 4, 6. Economic motives are not exclusively 
selfish. The desire for money does not exclude other influences; and may 
itself arise from noble motives. The range of economic measurement may 
gradually extend to much altruistic action. § 6. The motives to collective 
action are of great and growing importance to the economist. § 7. Econo- 
mists deal mainly with one side of man^s life; but it is the life of a real 
man, not of a fictitious being. See Appendix C. . . pp. 14 — 28 

Chapter III. Economic generalizations or laws. § l. Economics 
needs induction and deduction, but in different proportions for different 
purposes. §f 2, 3. The nature of laws: laws of physical science vary in 
precision. Social and economic laws correspond to those of the more 
complex and less exact and physical sciences. § 4. The relativity of the 
term Normal § 6. All scientific doctrines implicitly assume conditions : 
but this hypothetical element is specially prominent in economic laws. 
See Appendix D. ....... . pp. 29 — 37 



XX 


CONTENTS 


Chapter IV. The order and aims of economic studies. § l- Summary 
of Chapters II., III. § 2. Scientific inquiries are to be arranged with 
reference, not to the practical aims which they subserve, but to the nature 
of the subjects with which they are concerned. § 3. The chief subjects 
of economic investigation. § 4. Practical issues which stimulate the 
inquiries of the English economist at the present time, though they do not 
lie wholly within the range of his science. §§ 6, 6. The economist needs 
to train his faculties of perception, imagination, reason, sympathy, and 
caution pp. 38 — 48 


BOOK II. 

SOME FUNDAMENTAL NOTIONS. 

Chapter I. Introductory. § l. Economics regards wealth as satisfying 
wants, and as the result of efforts. § 2. The difficulties of classifying 
things which are changing their characters and their uses. § 3. Economics 
must follow the practice of every-day life. § 4. It is necessary that 
notions should be clearly defined, but not that the use of terms should 
be rigid pp. 49 — 53 

Chapter II. Wealth. § l. The technical use of the term Goods. Material 
goods. Personal goods. External and Internal goods. Transferable and 
non-transferable goods. Free goods. Exchangeable goods. § 2. A person’s 
wealth consists of those of his external goods which are capable of a money 
measure. § 3. But sometimes it is well to use the term Wealth broadly so 
as to include all personal wealth. § 4. The individual’s share of collective 
goods. § 6. National wealth; Cosmopolitan wealth. The juridical basis 
of rights to wealth pp. 64 — 62 

Chapter III. Production. Consumption. Labour. Necessaries. § i. 

Man can produce and consume only utilities, not matter itself. § 2. The 
word Productive is liable to be misunderstood, and should generally be 
avoided or explained. § 3. Necessaries for existence, and for efficiency. 
§ 4. There is waste when any one consumes less than is strictly necessary 
for efficiency. Conventional necessaries pp. 63 — 70 

Chapter IV. Income. Capital. § L Money income and trade capital. 
§ 2. Definitions from the ordinary business view of Net Income, Interest, 
Profits. Net advantages. Earnings of Management, Quasi-rents. § 3. Classi- 
fications of capital from the private point of view. §§ 4 — 7. Capital and 
income from the social point of view. § 8. Productiveness and prospeotive- 
ness are co-equal attributes of capital in connection with the demand for it 
and the supply of it respectively. See Appendix E. . . pp. 71 — 82 



BOOKS I— III 


XXI 


BOOK III. 

ON WANTS AND THEIR SATISFACTION. 

Chapter I. Introductory. § l. The relation in which the present Book 
stands to the three following. § 2. Insufficient attention has been paid 
till recently to demand and consumption. . . . pp. 83 — 85 

Chapter II. Wants in relation to activities. § i. Desire for variety. 
§§ 2, 3. Desire for distinction. § 4. Desire for distinction for its own 
sake. The position held in economics by the theory of consumption. 

pp. 86 — 91 

Chapter III. Gradations of consumers* demand. § l. The law of 
satiable wants or diminishing utility. Total utility. Marginal increment. 
Marginal utility. § 2. Demand price. § 3. Account must be taken of 
variations in the utility of money. § 4. A person’s demand schedule. 
Meaning of the term “an increase of demand.” § 6. Demand of a market. 
Law of demand. § 6. Demands for rival commodities. , pp. 92 — 101 

Chapter IV, The elasticity of wants. § l. Definition of Elasticity 
of demand. §§ 2, 3. A price which is low relatively to the rich may be 
high relatively to the poor. § 4. General causes affecting elasticity. 
§ 5. Difficulties connected mth the element of Time. § 6. Changes in 
fashion. § 7. Difficulties in the way of obtaining the requisite statistics. 
§ 8. Note on statistics of consumption. Traders’ books. Budgets of 
consumers pp. 102 — 116 

Chapter V. Choice between different uses of the same thing. Im- 
mediate and deferred uses. §§ l. 2. The distribution of a person’s 
means between the gratification of different wants, so that the same price 
measures equal utilities at the margin of different purchases. § 3. The 
distribution between present and future needs. Discounting future benefits. 
§ 4. Distinction between discounting future pleasures, and discounting 
future pleasurable events. ...... pp. 117 — 123 

Chapter VI. Value and utility. § L Price and Utility. Consumers’ 
surplus. Conjuncture. § 2. Consumers’ surplus in relation to the demand 
of an individual; §§ 3, 4 and in relation to a market. Individual differences 
of character may be neglected when we consider the average of large 
numbers of people; and if these include rich and poor in equal propor- 
tions, price becomes a fair measure of utility, § 6 provided allowance is 
made for collective wealth. § 6. Bernoulli’s suggestion. Broader aspects 
of the utility of wealth. . pp. 124 — 137 



XXll 


CONTENTS 


BOOK IV. 

THE AGENTS OF PRODUCTION. 

LAND, LABOUR, CAPITAL AND ORGANIZATION. 

Chapter I. Introductory. § L The agents of production. § 2. Margina 
disutility. Although work is sometimes its own reward; yet, with certain 
assumptions, we may regard its supply as governed by the price which is to 
be got for it. Supply price pp. 138 — 143 

Chapter II. The fertility of land. § l. The notion that land is a free 
gift of nature while the produce of land is due to man's work is not strictly 
accurate : but there is a truth underlying it. § 2. Mechanical and chemical 
conditions of fertility. § 3. Man's power of altering the character of the 
soil § 4. In any case the extra return to additional capital and labour 
diminishes sooner or later pp. 144 — 149 

Chapter III. The fertility of land, continued. The tendency to Dimin- 
ishing Return. § L Land may be under-cultivated and then the return 
due to extra capital and labour will increase, until a maximum rate has 
been reached; after which it will diminish again. Improved methods may 
enable more capital and labour to be profitably applied. The law relates 
to the amount of the produce, not its value. § 2. A dose of capital and 
labour. Marginal dose, marginal return, margin of cultivation. The 
marginal dose is not necessarily the last in time. Surplus produce; its 
relation to rent. Ricardo confined his attention to the circumstances of an 
old country. § 3. Every measure of fertility must be relative to place and 
time. § 4. As a rule the poorer soils rise in value relatively to the richer, 
as the pressure of population increases. §§ 6, 6. Ricardo said that the 
richest lands were cultivated first; and this is true in the sense in which 
he meant it. But he underrated the indirect advantages which a dense 
population offers to agriculture. § 7. The laws of return from fisheries, 
mines and building ground. § 8. Note on the law of Diminishing Return, 
and on a Dose of capital and labour. .... pp. 150 — 172 

Chapter IV. The growth of population. §§ l, 2. History of the doctrine 
of population. § 3. Malthus. §§ 4, 5. Marriage-rate and birth-rate. 
§§ 6, 7. History of population in England. . . . pp. 173 — 192 

Chapter V. The health and strength of the population. §§ i, 2. General 
conditions of health and strength. § 3. The necessaries of life. § 4 . Hope, 
freedom and change. § 5. Influence of occupation. § 0. Influence of 
town life. §§ 7, 8. Nature left to herself tends to weed out the weak. But 
much well-meant human action checks the increase of the strong, and 
enables the weak to survive. Practical conclusion. . pp. 193 — 203 



BOOK IV 


xxiii 


Chapter VI. Industrial training. ' §§ 1, 2. Unskilled labour a relative 
term. Skill with which we are familiar, we often do not recognize as skilL 
Mere manual skill is losing importance relatively to general intelligence 
and vigour. General ability and specialized skill. §§ 3 — 5. Liberal and 
technical education. Apprenticeships. § 6. Education in art. § 7. Edu- 
cation Vts a national investment. § 8. Mobility is increasing both between 
grades and within grades pp. 204 — 219 

Chapter VIL The growth of wealth. §§ 1 — 3. Unta recently there was 
little use of expensive forms of auxiliary capital; but they are now 
increasing fast, as is also the power to accumulate. § 4. Security as a 
condition of saving. § 6. The growth of a mchey economy gives new 
temptations to extravagance; but it has enabled people who have no 
faculty for business to reap the fruits of saving. § 6. The chief motive 
of saving is family affection. § 7. Sources of accumulation. Public 
accumulations. Co-operation. § 8. Choice between present and deferred 
gratifications. Some waiting, or postponement of gratification is generally 
involved in the accumulation of wealth. Interest is its reward. §§ 9, 10. 
The higher the reward, the greater the rate of saving as a rule. But there 
are exceptions. § 11. Note on the statistics of the growth of wealth. 

pp. 220— —239 

Chapter VIII. Industrial organization. §§ l, 2. The doctrine that 
organization increases efficiency is old, but Adam Smith gave it a new 
life. Economists and biologists have worked together in examining 
the influence which the struggle for survival exerts on organization; its 
harshest features softened by heredity. § 3. Ancient castes and modem 
classes. §§ 4, 5. Adam Smith was cautious but many of his followers 
exaggerated the economy of natural organization. The development of 
faculties by use; and their inheritance through early training, and possibly 
in other ways. ........ pp. 240 — 249 

Chapter IX, Industrial organization, continued. Division of labour. 
The influence of machinery. § 1. Practice makes perfect. § 2. In the 
lower, but not always in the higher grades of work extreme specialization 
increases efficiency. § 3. The influences exerted by machinery on the 
quality of human life are partly good and partly evil. § 4. Machine- 
made machinery is introducing the new era of Interchangeable Parts. 
§ 6. Blustration from the printing trade. § 6. Machinery relieves the 
strain on human muscles; and thus prevents monotony of work from 
involving monotony of life. § 7. Specialized skill and specialized 
machinery compared. External and Internal economies. pp. 250 — 266 

Chapter X. Industrial organization, continued. The concentration 
of specialized industries in particular localities. § i. Localized 
industries: their primitive forms. §2. Their various origins. §3. Their 
advantages; hereditary skill; the growth of subsidiary trades; the use of 
highly specialized machinery; a local market for special skill. § 4. The 
influence of improved means of communication on the geographical dis- 
tribution of industries. Illustration from the recent history of England. 

pp. 267—277 

Chapter XI. Industrial organization, continued. Production on a 
large scale. § l* The typical industries for our present purpose are those 



CJONTENTS 


of manufacture. The economy of material, §§ 2 — 4. The advantages of 
a large factory in the use and improvement of specialized machinery; in 
baying and selling; in specialized skill; and in the subdivision of the 
work of business management. Advantages of the small manufacturer in 
superintendence. Modem developments of knowledge act in a great measure 
on his side. § 5. In trades which offer great economies to production on 
a large scale, a firm may grow rapidly; provided it can market easily but 
often it cannot do that. § 6. Large and small trading establishments. 
§ 7. The carrying trades. Mines and quarries. . . pp. 278 — 290 

Chapter XII. Industrial organization, continued. Business manage- 
ment. § 1* The primitive handicraftsman dealt directly with the con- 
sumer; and so do as a rule the learned professions now. § 2. But in 
most businesses the services of a special class of undertakers intervene. 
§§ 3, 4. The chief risks of undertaking sometimes separated from the 
detailed work of management in the building and some other trades. The 
undertaker who is not an employer. § 5. The faculties required in the 
ideal manufacturer. § 6. The son of a business man starts with so many 
advantages, that one might expect business men to form something like 
a caste; reasons why this result does not follow. § 7. Private partner- 
ships. §§ 8, 9. Joint-stock companies. Government undertakings. 
§ 10. Co-operative association. Profit-sharing. § 11. The working man’s 
opportunities of rising. He is hindered less than at first sight appears, by 
his want of capital; for the Loan-fund is increasing rapidly. But the 
growing complexity of business is against him. § 12. An able business 
man speedily increases the capital at his command; and one who is not 
able generally loses his capital the more rapidly, the larger his business is. 
These two forces tend to adjust capital to the ability required to use it 
well. Business ability in command of capital has a fairly defined supply 
price in such a country as England pp. 291 — 313 

Chapter XIII. Conclusion. Correlation of the tendencies to increasing 
and to diminishing return. § l. Summary of the later chapters of this 
Book. § 2. Cost of production should be taken with reference to a re- 
presentative firm, which has normal access to the economies Internal and 
External belonging to a given aggregate volume of production. Constant 
Return and Increasing Return. § 3. An increase of numbers is generally 
accompanied by a more than proportionate increase of collective efficiency. 

pp. 314—322 


BOOK V. 

GENERAL RELATIONS OF DEMAND, SUPPLY, AND VALUE. 

Chapter I. Introductory. On markets. § l. Biological and mechanical 
notions of the balancing of opposed forces. Scope of the Book. § 2. Defi- 
nition of a Market. § 3. Limitations of a market with regard to Space. 
General conditions which affect the extent of the market for a thing; 
suitability for grading and sampling; portability. | 4. Highly organized 
markets. § 5. Even a small market is often subjected to indirect influences 
from great distances. § 6. Limitations of market with regard to Time. 

pp. 323^330 



BOOKS IV, V 


XXV 


Chapter II. Temporary equilibrium of demand and supply. § i. Equi- 
librium between desire and effort. In a caeual barter there is generally no 
true equilibrium. § 2. In a local com market a true, though temporary, 
equilibrium is generally reached. § 3. As a rule, the intensity of the need 
for money does not appreciably change during the dealing in a com market, 
but it does in a labour market. See Appendix F. . . pp. 331 — 336 

Chapter III. Equilibrium of normal demand and supply. § l. Nearly 
all dealings in commodities that are not very perishable, are affected by 
calculations of the future. § 2. Keal and money cost of production. 
Expenses of production. Factors of production. § 3. The principle of 
substitution. § 4. Cost of production by a representative firm. § 6. Supply 
schedule. § 6. Equilibrium-amount and equilibrium-price. Looseness of 
the connection between the supply-price of a commodity and its real cost 
of production. Trae significance of a position of normal equilibrium. 
Meaning of the phrase ‘‘in the long run.” §7. The influence of utility 
on value preponderates during short periods, but that of cost of pro- 
duction in the long run. ...... pp. 337 — 360 

Chapter IV. The investment and distribution of resources. §1. Motives 

determining the investment of capital in the case of a man who makes a 
thing for his own use. Balancing of future gratifications against present. 
§ 2. Accumulation of past and discounting of future outlays and receipts. 
Difficulty of distinguishing between expenditure on current and on capital 
account. § 3. The margin of profitableness, at which the principle of 
substitution acts, is not a point on any one route, but a line intersecting 
aU routes. § 4. Correlation between the distribution of resources in 
domestic and in business economy. §§ 6, 6. The division between Prime 
and Supplementary Costs varies with the duration of the enterprise in 
question : and this variation is the chief source of difficulty in the study of 
the relations of marginal costs to value. .... pp. 351 — 362 

Chapter V. Equilibrium of normal demand and supply, continued, 
with reference to long and short periods. § i. Elasticity of the term 
Normal in popular as well as in academic use. §§ 2, 3. The complex 
problem of normal value must be broken up. First step the fiction of a 
stationary state; modifications of which enable us to treat the problem by 
auxiliary statical assumptions. §§ 4, 5. Thus studies of the equilibrium 
of normal demand and supply may be divided into those which relate to 
long periods and to short. § 6. For short periods the stock of appliances 
of production is practically fixed; and their employment varies with the 
demand. § 7. But in long periods the flow of appliances for production is 
adjusted to the demand for the products of those appliances; and the 
unit of production is a process rather than a parcel of goods. § 8. Rough 
classification of problems of value pp. 363 — 380 

Chapter VI. Joint and composite demand. Joint and composite supply, 

§ 1. Indirect derived demand: joint demand. Illustration taken from a 
labour dispute in the building trade. Law of derived demand. § 2. Con- 
ditions under which a check to supply may raise much the price of a factor 
of production. § 3. Composite demand. § 4. Joint supply. Derived 
supply price. § 6. Composite supply. § 6. Complex relations between 
commodities. . pp. 381 — 393 



XXVl 


CONTENTS 


Chapter VII. Prime and total cost in relation to Joint products. 
Cost of marketing. Insurance against risk. Cost of reproduction. 

§§ 1, 2. Difficulties of assigning to each branch of a mixed business its 
proper share of the expenses of production* and especially of marketing. 
§§ 3, 4. Insurance against business risks. § 5. Cost of reproduction. 
Some of the remaining chapters of Book V. may be proyisionally omitted. 

* pp. 394 — i02 

Chapter Vlll. Marginal costs in relation to values. General principles. 

§ 1. This and the following three chapters carry further the study of the 
relations in which prime and supplementary costs stand to the value of 
products* and of the reflex action which the derived demand for products 
exerts on the values of agents employed in their production* with special 
reference to the influence of the element of time. § 2. Further illustra> 
tions of the principle of substitution. § 3. Definition of net jmroduct 
§ 4. An inappropriate increase in the use of any one agent yields a 
diminishing return: this fact is analogous to but not identical with the 
fact that a well-adjusted increase of capital and labour of various kinds 
applied to land yields a Diminishing Return. § 6. Marginal uses indicate* 
but do not govern value: they are governed together with value by the 
general relations of demand and supply. § 6. The terms Interest and 
Profits are directly applicable to fluid capital; but only indirectly* and on 
certain definite assumptions, to particular embodiments of capitaL The 
central doctrine of this group of chapters. . . . pp. 403 — 412 

Chapter IX. Marginal costs in relation to values. General principles, 

continued. § l- Reasons for illustrating the problem of value by refer- 
ence to the shifting of the incidence of taxes. §§ 2 — 4. Illustrations of the 
relations of rents and quasi-rents to value* discussed in the last chapter. 
§ 6. Scarcity rents and diflerential rents. . . . pp. 413 — 424 

Chapter X. Marginal costs in relation to agricultural values. 
§§ 1, 2. The influence of the element of time in this problem is best seen 
by reference to agricultural produce in general; and to the emergence 
of rent in a new country. § 3. Land is but one form of capital to the 
individual producer. §§ 4 — 6. Illustrations from the incidence of special 
taxes on all agricultural produce and on a single crop. Quasi-rents in 
relation to a single crop. ...... pp. 425 — 439 

Chapter XI. Marginal costs in relation to urban values. § l. The 
influence of situation on agricultural and urban values. Site values. 
§ 2. Exceptional cases in which situation value is created by deliberate 
individual or associated effort. § 3. Causes that govern ground rents for 
long leases. § 4. Diminishing return in relation to building land. 
§ 5. Competition of different classes of buildings for the same land. 
§ 6. Rents of traders in relation to the prices charged by them. 
§ 7. Composite rents of urban properties. See Appendix G. 

pp. 440 — 454 

Chapter XII. Equilibrium of normal demand and supply, continued, 
with reference to the law of increasing return. §§ i — 3. Modes of 
action of the tendency to increasing return. Dangers in the use ot the 
term Elasticity of Supply. Contrast between the economies of a whole 
industry and those of a single firm. See Appendix H. pp. 455—461 



BOOKS V, VI 


xxvn 


Chapter XIJI. Theory of changes of normal demand and supply, in 
relation to the doctrine of maximum satisfaction. $ l* Introduction. 
§ 2. Effects of an increase of normal demand. § 3. Effects of an increase 
of normal supply. § 4. The cases of constant, diminishing and increasing 
return. §§ 5 — 7. Statement and limitations of the abstract ^ doctrine of 
Maximum Satisfaction. pp. 462 — 476 

Chapter XIV. The theory of monopolies. S i* We are now to compare 
the monopolist*s gains from a high price with the benefits to the public of 
a low price. § 2. The primd facie interest of the monopolist is to get the 
maximum Net Revenue. § 3. The Monopoly Revenue Schedule. § 4. A 
tax, fixed in total amount, on a monopoly, will not diminish production; 
nor wiU one proportioned to monopoly net revenue; but it will have that 
effect if it is proportional to the quantity produced. § 6. A monopolist 
can often work economically. § 6. He may lower his price with a view 
to the future development of his business, or from a direct interest in 
the welfare of consumers. § 7. Total benefit. Compromise benefit. 
§ 8. The public importance of the statistical study of the law of demand 
and of consumers’ surplus. § 9. The problem of two complementary 
monopolies is incapable of a general solution. . . pp. 477 — 495 

Chapter XV. Summary of the general theory of equilibrium of demand 
and supply. §§ l — 6. A summary of Book V. See Appendix I. 

pp. 496 — 503 


BOOK VL 


THE DISTRIBUTION OF THE NATIONAL INCOME. 

Chapter I. Preliminary survey of distribution. § l. The drift of the 
Book as a whole. § 2. The Physiocrats assumed, in accordance with the 
peculiar circumstances of their country and time, that wages were at their 
lowest possible level, and that much the same was true of the interest 
on capital These rigid assumptions were partially relaxed by Adam 
Smith, and by Malthus. §§ 3 — 6. A series of hypothetical illustrations 
of the infiuence of demand on distribution drawn from a society, in which 
the problem of the relations between capital and labour does not exist. 
§ 7. The net product of a particular kind of labour illustrated by a worker 
of normal efficiency, whose employment causes no additional inireot cost, 
but whose work comes only just up to the margin at which the employer 
would derive no net gain from it. § 8. The demand for capital in generaL 
§ 9. Provisional summary. § 10. Further definition of the national 
income, or dividend. pp. 604 — 524 

Chapter II. Preliminary survey of distribution, continued. § i. The 
causes affecting the supply of the agents of production exert a coordinate 
influence with those affecting demand over distribution. §§ 2 — 4. Re- 
capitulation of the causes, discussed in Book IV., which affect the supply 
of various forms of labour and capital. The irregular influence which 
an increase in remuneration exerts on the exertion put forth by an in- 
dividuaL The more regular correspondence between normal wages and 
the growth of the population in numbers and vigour, especially the latter. 
The general influence exerted on the accumulation of capited and other 
forms of wealth, by the benefits to be derived from saving. § 6. Land may 



XXVlll 


CONTENTS 


be regarded as a special form of capital in relation both to the influence of 
demand in distribution, and to the application of the resources of an 
individual in production : but it stands on a different footing from capital 
relatively to that normal influence of the forces of supply in distribution, 
which we are considering in the present chapter. § 6. Provisional con- 
clusion of one stage of the argument. § 7. The mutual relations between 
the earnings and efficiencies of different groups of workers. § 8. We 
assume throughout no more enterprise, knowledge and freedom of com- 
petition than are in fact characteristic of the particular group of workers, 
employers, etc. at the place and time under discussion. § 9. On the 
relations between labour in general and capital in general. Capital aids 
labour. And it competes with labour for the field of employment; but 
this phrase needs to be interpreted carefully. § 10. The limited sense in 
which it is true that wages depend on advances made by capital. See 
Appendices J, K. • . . . . . . . pp. 525 — 545 

Chapter III. Earnings of labour. § l- The scope of chapters m. — x. 
§ 2. Competition tends to make weekly wages in similar employments not 
equal, but proportionate to the efficiency of the workers. Time -earnings. 
Payment by Piece-work. Efficiency-earnings. Time -earnings do not tend 
to equality but efficiency-earnings do. §§ 3, 4. Real wages and Nominal 
wages. Allowance must be made for variations in the purchasing power 
of money, with special reference to the consumption of the grade of labour 
concerned; and for trade expenses and all incidental advantages and 
disadvantages. § 5. Wages partly paid in kind. The Truck System. 
§ 6. Uncertainty of success and irregularity of employment. § 7. Supple- 
mentary earnings. Family earnings. § 8. The attractiveness of a trade 
does not depend merely on its money-eamings, but on its net advantages. 
Influence of individual and national character. Peculiar conditions of the 
lowest grade of workers. ....... pp. 546 — 558 

Chapter IV. Earnings of labour, continued. § i. The importance of 
many x>eculiarities in the action of demand and supply with regard to 
labour depends much on the cumulativeness of their effects; thus re- 
sembling the influence of custom. §§ 2 — 4. First peculiarity: the worker 
sells his work, but he himself has no price. Consequently the investment 
of capital in him is limited by the means, the forethought, and the un- 
selfishness of his parents. Importance of a start in life. Influence of 
moral forces. § 6. Second peculiarity. The worker is inseparable from his 
work. § 6. Third and fourth jieculiarities. Labour is perishable, and the 
sellers of it are often at a disadvantage in bargaining. . pp. 559 — 569 

Chapter V. Earnings of labour, continued. § l. The fifth peculiarity 
of labour consists in the great length of time required for providing addi- 
tional supplies of specialized ability. § 2. Parents in choosing trades for 
their children must look forward a whole generation; difficulties of fore- 
casting the future. § 3. Movements of adult labour are of increasing 
importance in consequence of the growing demand for general ability. 
§§ 4 — 6. R^Bum4 of the distinction between long and short periods with 
reference to normal value. Fluctuations of the special earnings of skiU 
and ability, as distinguished from those which compensate for the exertion 
involved in any particular task. § 7. The earning^ of rare natural abili- 
ties yield a surplus over costs of rearing and training, w hich resembles a 
rent in some respects. pp. 570 — 579 



BOOK VI 


XXIX 


Chapter VI. Interest of capital. §§ 1 — 3. The theory of interest has been 
improved recently in many details, but has not undergone any substantial 
change. It was misconceived in the Middle Ages, and by Bodbertus and 
Marx. §§ 4, 6. The Gross interest paid by the borrower includes some 
insurance against risks, both real and personal, and some earnings of 
management as well as true or Net interest. It therefore does not tend to 
equality as net interest does. § 6. The term Rate of Interest needs to be 
applied with caution in regard to old investments. § 7. Relations between 
changes in the purchasing power of money and changes in the rate of 
interest . . pp. 580 — 595 

Chapter VII. Profits of capital and business, power. § i. Struggle 

for Survival among business men. Services of those who pioneer. 
§§ 2 — 4. The influence of the principle of Substitution on Earnings of 
Management, illustrated by comparing flrstly the services of foremen with 
those of ordinary workmen, secondly those of heads of businesses with those 
of foremen, and lastly those of the heads of large and small businesses. 
§ 5. Position of the business man who uses much borrowed capital. 
§ 6. Joint-stock companies. § 7. General tendency of modern methods 
of business to adjust earnings of management to the difficulty of the work 
done. .......... pp. 596 — 608 

Chapter VIII. Profits of capital and business power, continued. 

§ 1. We have next to inquire whether there is any general tendency of 
the rate of profits to equality. In a large business some Earnings of 
Management are classed as salaries; and in a small one much wages of 
labour are classed as profits; and in consequence profits appear higher 
in small businesses than they really are. § 2. The normal annual rate 
of profits on the capital employed is high where the circulating capital 
is large relatively to the fixed. The economies of production on a large 
scale, when generally diffused throughout an industry, do not raise the rate 
of profits in it. §§ 3, 4. Each branch of trade has its customary or fair 
rate of profits on the turnover § 5. Profits are a constituent element of 
normal supply-price; but the income derived from capital already invested, 
in a material form or in the acquisition of skill, is governed by the demand 
for its products. §§ 6 — 8. A comparison between profits and other earn- 
ings in relation to fluctuations of prices; to inequalities between different 
individuals; and to the proportions of the whole which are properly earnings 
of effort, and of natural abilities respectively. §§ 9, 10. The relations 
between the interests of different classes of workers in the same trade, 
and especially in the same business. .... pp. 609 — 628 

Chapter IX. Rent of land. §§ l, 2. The rent of land is a species of a large 
genus. For the present we suppose land to be cultivated by its owners. 
R4sum6 of earlier discussions. § 3. A rise in the real value of produce 
generally raises the produce value of the surplus, and its real value even 
more. Distinction between the labour value, and the general purchasing 
power of produce. § 4 Effects of improvements on rent. § 5. The 
central doctrine of rent is applicable to nearly all systems of land tenure. 
But in the modem English system the broad line of division between the 
landlord’s and the farmer’s share is also that which is most important for 
science. See Apx>endix L pp. 629 — 636 



XXX 


CONTENTS 


Chapter X. Land tenure. § l. Early forms of Land tenure have generally 
been based on partnerships, the terms of which are determined by custom, 
rather than by conscious contract; the so-called landlord is generally the 
sleeping partner. §§ 2, 3. But custom is much more plastic than at first 
appears, as is shown even by recent English history. Caution is needed 
when applying Ricardian analysis to modem English land problems; as 
well as to earlier systems. The terms of partnership in them were 
vague, elastic, and capable of unconscious modification in many ways. 
§§ 4, 6. The advantages and disadvantages of metayage and peasant- 
proprietorship. §§ 6, 7. The English system enables the landlord to 
supply that part of the capital for which he can be easily and effectively 
responsible; and it gives considerable freedom to the forces of selection, 
though less than there is in other branches of industry. §§ 8, 9. Large 
and small holdings. Co-operation. § 10. Difficulty of deciding what are 
normal prices and harvests. The tenant’s freedom to make and reap 
the fruits of improvements. § 11. Conflict between public and private 
interests in regard to building, open spaces, and other matters. 

pp. 637—659 

Chapter XI. General view of distribution. §§ 1—3. Summary of the 
preceding eight chapters, in which is traced a thread of continuity lying 
across that traced in Book V. chapter xiv,, and establishing a unity between 
the causes that govern the normal values of the various agents and 
appliances of production, material and human. § 4. The various agents 
of production may be competitors for employment, but they are also the 
sole source of employment for one another. How an increase of capital 
enriches the field of employment for labour. § 6. An increase either in 
the number or in the efficiency of any group of workers generally benefits 
other workers; but the former injures, while the latter benefits themselves. 
It changes the marginal products of its own labour and of other kinds of 
labour, and thus affects wages. Need for great care in estimating normal 
marginal product pp. 660 — 667 

Chapter XII. General influences of proEfress on value. § 1. The 

richness of the field of employment for capital and labour in a new country 
depends partly on the access to markets in which it can sell its goods 
and mortgage its future incomes for present supplies of what it wants. 
§§ 2, 3. England’s foreign trade in last century increased her command over 
comforts and luxuries, and only within recent years has much increased 
her command over necessaries. § 4. Her direct gains from the progress of 
manufactures have been less than at first sight appears; but those from the 
new means of transport have been greater. § 5. Changes in the labour 
values of com, meat, house-room, fuel, clothing, water, light, news, and 
travel. §§ 6 — 8. Progress has raised the labour- value of English land, 
urban and rural, taken together; though it has lowered the value of most 
kinds of material appliances; and the increase of capital has lowered its 
proportionate, but not its total income. §§ 9, 10. Nature and causes of 
changes in the earnings of different industrial classes. § 11. The earnings 
of exceptional ability. § 12. Progress has done more than is generally 
thought to raise the wages of labour, and has probably lessened rather than 
increased, the inconstancy of employment of free labour. pp. 668 — 688 



BOOK VI 


xxxi 


Chapter Kill. Progress In relation to standards of life. §§ l, 2. Stan- 
dards of actirities and of wants: of life and of comfort. A rise in the 
standard of comfort could haye raised wages considerably in England a 
century ago by checking the growth of population: but easy access to 
food and raw produce from new countries has left little to be done in that 
direction. §§ 3 — 6. Efforts to regulate activities by reducing the hours 
of work. Excessive hours are wasteful. But a reduction of moderate 
hours lessens output generally. Therefore though its immediate effect 
may be to give an impetus to employment, it must soon lessen the amount 
of employment at good wages, unless the leisure is so used as to develop 
higher and larger activities. Danger of the emigration of capitaL Difhculty 
of assi g nin g observed facts to their true causes. Immediate and ultimate 
results are often in opposite directions. §§ 7 — 9. The original aim of 
trade unions was to give the workman independence and thus to raise 
his standard of life, as much as to raise his wages. The success of this 
endeavour testifies to the importance of their chief weapon — the Common 
Rule. But the rigid enforcement o the letter of that rule is apt to cause 
false standardization of work and to hamper enterprise; to repel capital; 
and in other ways to injure the working classes together with the rest of the 
nation. § 10. Difficulties connected with changes in the purchasing power 
of money, especially in regard to credit fiuctuations. §§ 11 — 15. Pro- 
visional conclusion as to the possibilities of social progress. An equal 
division of the national dividend would lower the incomes of many artisan 
households. Exceptional treatment is needed for the Residuum: but the 
best means of raising the wages of unskilled work is so thorough an educa- 
tion of character and faculty for all classes of the people as will, on the one 
hand, greatly reduce the numbers of those who are incapable of any but 
unskilled work; and, on the other, will increase the numbers of those 
capable of that higher constructive imagination, which is the chief source 
of man’s command over nature. But a truly high standard of life cannot 
be attained till man has learnt to use leisure well; and this is one of many 
indications that violent economic changes work mischief, if they outrun 
the slow transformaUon of that character, which mankind has inherited 
from long ages of selfishness and strife. . . . pp. 689 — 722 


Appendix A. The growth of free industry and enterprise. § i. Physical 
causes act most powerfully in the early stages of civilization, which have 
necessarily taken place in warm climates. § 2. Divided ownership 
strengthens the force of custom and resists changes. § 3. The Greeks 
brought Northern energy to bear on Oriental culture; but they regarded 
industry as specially belonging to slaves. § 4. The apparent resemblance 
between the economio conditions of the Roman and modem world is 
superficial; but the Stoic philosophy and the cosmopolitan expeiienoe of 
the later Roman lawyers exercised considerable indirect infiueikoe on 
economic thought and action. § 5. The Teutons were slow to ieam from 
those whom they had conquered: learning was kept alive by the Saracens. 
§§ 6, 7. Self-government by the people could ^ist only in the free towns. 
§ K The influenoe of Chivalry and of the Church. The growth of large 
annies led to the overthrow of the free cities. But the hopce of progress 
were again raised by the invention of printing, the Reformation, and the 



XXXll 


CONTENTS 


discovery of the New World. § 9. The benefit of the maritime dia 
ooveries went first to the Spanish peninsula; but it soon moved further on, 
to Holland, to France, and to England. § 10. The character of English- 
men early showed signs of their modem faculty for organized action. 
The capitalist organization of agriculture pioneered the way for that of 
manufacture. §§ 11» 12. Influence of the Reformation. § 13. English 
enterprise was promoted by the growth of consumers beyond the seas, 
wanting large quantities of goods of simple patterns. The undertakers at 
first merely organized supply, without supervising industry; but later 
collected their operatives into factories. §§ 14, 16. Henceforth manu- 
facturing labour was hired wholesale. The new organization was 
accompanied by great evils; many of which were, however, due to other 
causes: while the new system had saved England from French armies. 
§§ 16, 17. The telegraph and printing-press enable the people now to 
decide on their own remedies for their evils; and we are gradually moving 
towards forms of collectivism, which will be higher than the old, in so far 
as they are based on strong self-disciplined individuality. pp. 723 — 753 

Appendix B. The growth of economic science. § i. Modem economic 
science owes much to ancient thought indirectly, but little directly. 
The early fetters on trade' were a little relaxed by the Mercantilists. 
§§ 2, 3. The Ph 3 ^siocrats. Adam Smith developed their doctrine of free 
trade, and found in the theory of value a common centre that gave unity to 
economic science. §§ 4, 5. The study of facts was not neglected by his 
successors, though some of them had a bias towards deductive reasoning. 
§§ 6 — 8. They did not however allow enough for the dependence of man’s 
character on his circumstances. The influence of socialist aspirations and 
biological studies in this respect. John Stuart Mill. Characteristics of 
modem work. ........ pp. 754 — 769 

Appendix C. The scope and method of economics. § 1. A unified 
social science is desirable, but unattainable. The value of Comte’s 
suggestions, the weakness of his negations. § 2. Methods of economics, 
physics, and biology. § 3. Explanation and prediction are the same 
operation in opposite directions. Only such interpretations of past facts 
as are based on thorough analysis can serve as good guides for the future. 
§§ 4 — 6. Untrained common sense can often carry analysis far: but it can 
seldom discover obscure causes, and especially not the causes of causes. 
Functions of the machinery of science. . . . pp. 770 — 780 

Appendix D. Uses of abstract reasoning in economics. § l. Economics 
affords no scope for long chains of deductive reasoning: nature and 
limitations of services rendered by a mathematical training. §§ 2, 3. Con- 
structive imagination is the dominant force in scientific work: its strength 
is shown not in developing abstract hypotheses, but in correlating the 
multitudinous influences of real economic forces acting over a wide aresu 
- pp. 781—784 

Appendix E. Definitions of capital. § l- Trade-capital does not include 
all the wealth that gives employment to labour. §§ 2, 3. The sterility of 
controversies as to the relative importance of the two essential properties, 
prospectivcncss and productiveness. .... pp. 786—790 



APPENDICES A— J 


xxxiii 

Appendix P. Barter. The uncertainties of market bargaining are greater in 
barter than where money is used; partly because a man can generally give 
out, or take in, a given quantum (not a given percentage) of value in the 
form of money without greatly altering its marginal utility to him, than he 
can in the form of any single commodity. . . • pp. 791 — 793 

Appendix G. The incidence of local rates, with some suggestions as 
to policy. § 1- The ultimate incidence of a rate varies greatly according 
as the population is or is not migratory, and as the rate is Onerous or 
Beneficial, Rapid changes in conditions make clear foresight impossible. 
§ 2. The “building value” of a property together with its site value 
combine to make its whole value, provided the building is appropriate to 
the site: but not otherwise. §3. Onerous taxes on site values fall 
mainly on owners; or, if unforeseen, on lessees. § 4. But such onerous 
taxes on building values, as are uniform all over the country, fall mainly 
on the occupier. Exceptionally heavy local onerous rates are however 
largely paid by owner (or lessee), even in so far as assessed on building 
values. § 5. The distribution of the burden of old rates and taxes is but 
little affected by their being collected from the occupier: but a sudden 
increase of onerous rates is a grievous burden to the occupier, especially 
if a shopkeeper, under the present system of collection. § 6 . Assessment 
of vacant building sites on the basis of their capital value, and a partial 
transference of assessments from building to site values generally, might 
be beneficial, provided they were gradual, and accompanied by stringent 
bylaws as to the relation between the heights of buildings and the free 
spaces in front and back. § 7. Some further observations on rural rates. 
§§ 8 , 9. Some practical suggestions. The permanent limitations in the 
supply of land, and the large share which collective action has in its 
present value, require it to be classed in a separate category for the 
purposes of taxation pp, 794 — 804 

Appendix H. Limitations of the use of statical assumptions in regard 
to increasing return. §§ 1 — 4. The hypothesis of a rigid supply schedule 
leads to the possibility of multiple positions of equilibrium, stable and 
unstable. But this hypothesis diverges so far from actual conditions, 
in regard to increasing return, that it can be applied only tentatively 
and within a narrow scope. Caution in regard to the use of the term 
Normal Supply -price in this connection. . . . pp. 805 — 812 

Appendix 1. Ricardo's theory of value. §§ 1 — 3. Though obscurely 
expressed, it anticipated more of the modern doctrine of the relations 
between cost, utility and value, than has been recognized by Jevons and 
some other critics. pp. 813 — 821 

Appendix J. The doctrine of the wages-fund. §1. The scarcity of 
capital a century ago inclined economists to lay excessive stress on the 
part played by the supply of capital in governing wages. §§ 2, 3. This 
exaggeration is found in the discussion of wages in Mill’s Second Book 
which preceded his study of Value; but not in the later discussion of 
Distribution in his Fourth Book. The partial symmetry of the mutual 
relations of capital and labour; and of production and consumption. 
§ 4. Relation of wages to trade-capital and to other forms of wealth. 

pp. 822 — 829 



XXXIV 


CONTENTS 


Appendix K. Certain kinds of surplus. The aggregate real cost of any 
branch of production is less than in proportion to its marginal costs in 
several ways; to each of which there corresponds what may be regarded as a 
surplus from some special point of view. But only those kinds of surplus, 
which have been discussed in the text, appear to call for careful study. 

pp» 830 — 832 

Appendix L. Ricardo’s doctrine as to taxes and improvements in 
agriculture. Part of his reasoning proceeds on latent improbable 
assumptions: and though logicaUy valid, it is not applicable to actual 

conditions 333 — 337 

Mathematical Appendix 838—858 

IXldez 859—871 



BOOK I 


PKELIMINARY SURVEY. 


CHAPTER L 

INTRODUCTION. 

§1. Political Economy or Economics is a study of i,i, i. 
mankind in the ordinary business of life; it examines that 
part of individual and social action which is most closely 
connected with the attainment and with the use of the 
material requisites of wellbeing. 

Thus it is on the one side a study of wealth; and on the Economics 
other, and more important side, a part of the study of man. of weSfif 
For man’s character has been moulded by his every-day 
work, and the material resources which he thereby procures, 
more than by any other influence unless it be that of his 
religious ideals; and the two great forming agencies of the 
world’s history have been the religious and the economic. 

Here and there the ardour of the military or the artistic 
spirit has been for a while predominant: but religious and 
economic influences have nowhere been displaced from the 
front rank even for a time; and they have nearly always 
been more important than all others put together. Religious 
motives are more intense than economic, but their direct 
action seldom extends over so large a part of life. For the Man’s 
business by which a person earns his livelihood generally fills formed by 
his thoughts during by far feie greater part of/those hours in 
which his mind is at its best; during then:^ his character is 


M. 


1 



2 


INTEODUCnON 


1 , 1 , 1 . 


Poverty 
causes de- 
gradation. 


being formed by the way in which he uses his faculties in 
his work, by the thoughts and the feelingi? which it suggests, 
and by his relations to his associates in work, his employers 
or his employees. 

And very often the influence exerted on a person’s 
character by the amount of his income is hardly less, if it 
is less, than that exerted by the way in which it is earned. 
It may make little difierence to the fulness of life of a family 
whether its yearly income is £1000 or £6000; but it makes 
a very great difference whether the income is £30 or £150: 
for with £150 the family has, with £30 it has not, the material 
conditions of a complete life. It is true that in religion, in 
the family affections and in friendship, even the poor may 
find scope for many of those faculties which are the source of 
the highest happiness. But the conditions which surround 
extreme poverty, especially in densely crowded places, tend 
to deaden the higher faculties. Those who have been called 
the Residuum of our large towns have little opportunity for 
friendship; they know nothing of the decencies and the quiet, 
and very little even of the unity of family life; and religion 
often fails to reach them. No doubt their physical, mental, 
and moral ill-health is partly due to other causes than poverty : 
but this is the chief cause. 

And, in addition to the Residuum, there are vast numbers 
of people both in town and country who are brought up with 
insufiScient food, clothing, and house-room ; whose education 
is broken off early in order that they may go to work for 
wages; who thenceforth are engaged during long hours in 
exhausting toil with imperfectly nourished bodies, and have 
therefore no chance of developing their higher mental faculties. 
Their life is not necessarily unhealthy or unhappy. Rejoicing 
in their affections to wards God and man, and perhaps even 
possessing some natural refinement of feeling, they may lead 
n^es that are far less incomplete than those of many, who 
hav^^^r® material wealth. But, for all that, their poverty 
is a gre^^ almost unmixed evil to them. Even when they 
are wdl, weariness often amounts to pain, while their 
pleasures are and when s^^kness comes, the suffering 
caused by poverty increases tenfold. And, though a contented 



THE URGENCY OP THE PROBLEM OP POVERTY 


spirit may go far towards reconciling them to these evils, 1,1,2. 
there are others to which it ought not to reconcile them. 
Overworked and undertaught, weary and careworn, without 
quiet and without leisure, they have no chance of making 
the best of their mental faculties. 

Although then some of the evils which commonly go with May we not 
poverty are not its necessary consequences; yet, broadly 
speaking, ‘"the destruction of the poor is their poverty,*' and poverty is 
the study of the causes of poverty is the study of the causes necessary? 
of the degradation of a large part of mankind. 

§ 2. Slavery was regarded by Aristotle as an ordinance 
of nature, and so probably was it by the slaves themselves in 
olden time. The dignity of man was proclaimed by the 
Christian religion: it has been asserted with increasing 
vehemence during the last hundred years: but, only through 
the spread of education during quite recent times, are we 
beginning to feel the full import of the phrase. Now at last 
we are setting ourselves seriously to inquire whether it is 
necessary that there should be any so-called lower classes" 
at all : that is, whether there need be large numbers of people 
doomed from their birth to hard work in order to provide for 
others the requisites of a refined and cultured life; while they 
themselves are prevented by their poverty and toil from 
having any share or part in that life. 

The hope that poverty and ignorance may gradually be 
extinguished, derives indeed much support from the steady 
progress of the working classes during the nineteenth century. 

The steam-engine has relieved them of much exhausting 
and degrading toil; wages have risen; education has been 
improved and become more general; the railway and the 
printing-press have enabled members of the same trade in 
different parts of the country to communicate easily with 
one another, and to undertake and carry out broad and 
far-seeing lines of policy; while the growing demand for 
intelligent work has caused the artisan classes to increase 
so rapidly that they now outnumber those whose labour is 
entirely unskilled* A great part of the artisans have ceased 
to belong to the “lower classes" in the sense in which the 
term was originally used; and some of them already lead a 



4 


INTRODUCTION 


1,1,8. more refined and noble life than did the majority of the 
upper classes even a century ago. 

This progress has done more than anything else to give 
practical interest to the question whether it is really im- 
possible that all should start in the world with a fair chance 
of leading a cultured life, free from the pains of poverty and 
the stagnating infiuences of excessive mechanical toil; and 
this question is being pressed to the front by the growing 
earnestness of the age. 

The question cannot be fully answered by economic 
science. For the answer depends partly on the moral and 
political capabilities of human nature, and on these matters 
the economist has no special means of information: he must 
do as others do, and guess as best he can. But the answer 
depends in a great measure upon facts and inferences, which 
are within the province of economics; and this it is which 
gives to economic studies their chief and their highest 
interest. 

Causes of § 3. It might have been expected that a science, which 
deals with questions so vital for the wellbeing of mankind, 
sc?en^^ would have engaged the attention of many of the ablest 
thinkers of every age, and be now well advanced towards 
maturity. But the fact is that the number of scientific 
economists has always been small relatively to the difficulty 
of the work to be done; so that the science is still almost 
in its infancy. One cause of this is that the bearing of 
economics on the higher wellbeing of man has been over- 
looked. Indeed, a science which has wealth for its subject- 
matter, is often repugnant at first sight to many students; 
for those who do most to advance the boundaries of know- 
ledge, seldom care much about the possession of wealth for 
its own sake. 

Changeful- But a more important cause is that many of those con- 
•conomic ditions of industrial life, and of those methods of production, 
conditions. (Jigtribution and consumption, with which modem economic 
science is concerned, are themselves only of recent date. It 
is indeed true that the change in substance is in some respects 
not so great as the change in outward form; and much more 
of modem economic theory, than at first appears, can be 



ECONOMICS IS A MODERN SCIENCE 


5 


adapted to the conditions of backward races. But unity in i, x, 4. 
substance, underljdng many varieties of form, is not easy to 
detect; and changes in form have had the effect of making 
writers in all ages profit less than they otherwise might 
have done by the work of their predecessors. 

The economic conditions of modem life, though more 
complex, are in many ways more definite than those of 
earlier times. Business is more clearly marked off from 
other concerns; the rights of individuals as against others 
and as against the community are more sharply defined; and 
above all the emancipation from custom, and the growth of 
free activity, of constant forethought and restless enterprise, 
have given a new precision and a new prominence to the 
causes that govern the relative values of different things and 
different kinds of labour. 

§ 4. It is often said that the modern forms of industrial Thefunda- 

. . , mental cha- 

life are distinguished from the earlier by being more com- racteristic 
petitive. But this account is not quite satisfactory. The^nd^t^S* 
strict meaning of competition seems to be the racing of one 
person against another, with special reference to bidding for petition, 
the sale or purchase of anything. This kind of racing is no 
doubt both more intense and more widely extended than it 
used to be: but it is only a secondary, and one might almost 
say, an accidental consequence from the fundamental charac- 
teristics of modem industrial life. 

There is no one term that will express these characteristics but se 
adequately. They are, as we shall presently see, a certain 
independence and habit of choosing one^s own course for§®{*^^ 
oneself, a self-reliance; a deliberation and yet a promptness 
of choice and judgment, and a habit of forecasting the future thought, 
and of shaping one’s course with reference to distant aims. 

They may and often do cause people to compete with one 
another; but on the other hand they may tend, and just now 
indeed they are tending, in the direction of co-operation and 
combination of all kinds good and evil. But these tendencies 
towards collective ownership and collective action are quite 
different from those of earlier times, because they are the 
result not of custom, not of any passive drifting into 
association with one’s neighbours, but of free choice by 



6 


INTEODUOnON 


1 . 1 , 4 . 


“Com- 
petition** 
implies too 
much as 
well as 
too little. 
Man is not 
more 

selfisb than 
be was. 


each individual of that line of conduct which after careful 
deliberation seems to him the best suited for attaining his 
ends, whether they are selfish or unselfish. 

The term ‘^competition’* has gathered about it evil 
savour, and has come to imply a certain selfishness and 
indifierence to the wellbeing of others. Now it is true that 
there is less deliberate selfishness in early than in modem 
forms of industry; but there is also less deliberate unselfish- 
ness. It is deliberateness, and not selfishness, that is the 
characteristic of the modern age. 

For instance, while custom in a primitive society extends 
the limits of the family, and prescribes certain duties to 
one’s neighbours which fall into disuse in a later civilization, 
it also prescribes an attitude of hostility to strangers. In 
a modern society the obligations of family kindness become 
more intense, though they are concentrated on a narrower 
area; and neighbours are put more nearly on the same 
footing with strangers. In ordinary dealings with both of 
them the standard of fairness and honesty is lower than in 
some of the dealings of a primitive people with their 
neighbours: but it is much higher than in their dealings 
with strangers. Thus it is the ties of neighbourhood alone 
that have been relaxed: the ties of family are in many ways 
stronger than before, family afiection leads to much more 
self-sacrifice and devotion than it used to do; and sympathy 
with those who are strangers to us is a growing source of 
a kind of deliberate unselfishness, that never existed before 
the modem age. That country which is the birthplace of 
modem competition devotes a larger part of its income than 
any other to charitable uses, and spent twenty millions on 
purchasing the freedom of the slaves in the West Indies. 

In every age poets and social reformers have tried to 
stimulate the people of their own time to a nobler life by 
enchanting stories of the virtues of the heroes of old. But 
neither the records of history nor the contemporary ob- 
servation of backward races, when carefully studied, give any 
support to the doctrine that man is on the whole harder and 
harsher than he was; or that he was ever more willing than 
he is now to sacrifice his own happiness for the benefit of 



CHARACTERISTICS OP MODERN BUSINESS 


others in cases where custom and law have left him free to i, x, 4. 
choose his own course. Among races, whose intellectual 
capacity seems not to have developed in any other direction, 
and who have none of the originating power of the modem 
business man, there will be found many who show an evil 
sagacity in driving a hard bargain in a market even with 
their neighbours. No traders are more unscrupulous in 
taking advantage of the necessities of the unfortunate than 
are the corn-dealers and money-lenders of the East. 

Again, the modern era has undoubtedly given new open- Man is 
ings for dishonesty in trade. The advance of knowledge has dishonest 
discovered new ways of making things appear other than 
they are, and has rendered possible many new forms of 
adulteration. The producer is now far removed from the 
ultimate consumer; and his wrong-doings ‘ are not visited 
with the prompt and sharp punishment which falls on the 
head of a person who, being bound to live and die in his 
native village, plays a dishonest trick on one of his neigh- 
bours. The opportunities for knavery are certainly more 
numerous than they were; but there is no reason for think* 
ing that people avail themselves of a larger proportion of 
such opportunities than they used to do. On the contrary, 
modern methods of trade imply habits of trustfulness on the 
one side and a power of resisting temptation to dishonesty 
on the other, which do not exist among a backward people. 
Instances of simple truth and personal fidelity are met with 
under all social conditions: but those who have tried to 
establish a business of modern type in a backward country 
find that they can scarcely ever depend on the native popu- 
lation for filling posts of trust. It is even more difficult to 
dispense with imported assistance for work, which calls for 
a strong moral character, than for that which requires great 
skill and mental ability. Adulteration and fraud in trade 
were rampant in the middle ages to an extent that is very 
astonishing, when we consider the difficulties of wrong-doing 
without detection at that time. Dreams of 

In every stage of civilization, in which the power of money 
has been prominent, poets in verse and prose have delighted 
to depict a past truly “Golden Age,” before the pressure of leading. 



8 


1 , 1 , 4 . 


Modem 
com{)eti- 
tion is of 
two kinds, 


construc- 
tive and 
destruc- 
tive. 


INTRODUCTION 

mere material gold had been felt. Their idyllic pictures 
have been beautiful, and have stimulated noble imaginations 
and resolves; but they have had very little historical truth. 
Small communities with simple wants for which the bounty 
of nature has made abundant provision, have indeed some- 
times been nearly free from care about their material needs, 
and have not been tempted to sordid ambitions. But 
whenever we can penetrate to the inner life of a crowded 
population under primitive conditions in our own time, we 
find more want, more narrowness, and more hardness than 
was manifest at a distance: and we never find a more widely 
diffused comfort alloyed by less suffering than exists in the 
western world to-day. We ought therefore not to brand 
the forces, which have made modern civilization, by a name 
which suggests evil. 

It is perhaps not reasonable that such a suggestion 
should attach to the term ‘‘competition'^ ; but in fact it does. 
In fact, when competition is arraigned, its anti-social forms 
are made prominent; and care is seldom taken to inquire 
whether there are not other forms of it, which are so essen- 
tial to the maintenance of energy and spontaneity, that their 
cessation might probably be injurious on the balance to 
social wellbeing. The traders or producers, who find that 
a rival is offering goods at a lower price than will yield them 
a good profit, are angered at his intrusion, and complain of 
being wronged; even though it may be true that those who 
buy the cheaper goods are in greater need than themselves, 
and that the energy and resourcefulness of their rival is a 
social gain. In many cases the “regulation of competition" 
is a misleading term, that veils the formation of a privileged 
class of producers, who often use their combined force to 
frustrate the attempts of an able man to rise from a lower 
class than their own. Under the pretext of repressing anti- 
social competition, they deprive him of the liberty of carving 
out for himself a new career, where the services rendered by 
him to the consumers of the commodity would be greater 
than the injuries, that he inflicts on the relatively small 
group which objects to his competition. 

If competition is contrasted with energetic co-operation 



COMPETITION MAY BE LESS CRUEL THAN COMBINATION 


9 


in unselfish work for the public good, then even the best 
forms of competition are relatively evil; while its harsher 
and meaner forms are hateful. And in a world in which all 
men were perfectly virtuous, competition would be out of 
place; but so also would be private property and every form 
of private right. Men would think only of their duties; and 
no one would desire to have a larger share of the comforts 
and luxuries of life than his neighbours. Strong producers 
could easily bear a touch of hardship; so they would wish 
that their weaker neighbours, while producing less should 
consume more. Happy in this thought, they would work 
for the general good with all the energy, the inventiveness, 
and the eager initiative that belonged to them ; and mankind 
would be victorious in contests with nature at every turn. 
Such is the Golden Age to which poets and dreamers may 
look forward. But in the responsible conduct of affairs, it is 
worse than folly to ignore the imperfections which still cling 
to human nature. 

History in general, and especially the history of socialistic 
ventures, shows that ordinary men are seldom capable of 
pure ideal altruism for any considerable time together; and 
that the exceptions are to be found only when the masterful 
fervour of a small band of religious enthusiasts makes 
material concerns to count for nothing in comparison with 
the higher faith. 

No doubt men, even now, are capable of much more 
unselfish service than they generally render: and the 
supreme aim of the economist is to discover how this latent 
social asset can be developed .most quickly, and turned to 
account most wisely. But he must not decry competition 
in general, without analysis : he is bound to retain a neutral 
attitude towards any particular manifestation of it until he 
is sure that, human nature being what it is, the restraint of 
competition would not be more anti-social in its working 
than the competition itself. 

We may conclude then that the term ‘‘ competition is 
not well suited to describe the special characteristics of 
industrial life in the modem age. We need a term that 
does not imply any moral qualities, whether good or evil, but 


1 , 1 , 4 . 

Even con* 
sbructive 
competi- 
tion is less 
beneficent 
than ideal 
altruistic 
co-opera- 
tion. 



mTBODUCnON 


W 


I, r.«. 


Economic 

Freedom. 


Rough 
sketches 
of the 
growth of 
economic 
freedom 
and of 
economic 
science are 
transferred 
from this 
Book to Ap- 
pendices 
A and B. 


The 

growth of 
economic 
freedom. 


which indicates the undisputed fact that modem business 
and industry are characterized by* more self-reliant habits, 
more forethought, more deliberate and free choice. There 
is not any one term adequate for this purpose : but Freedom 
of Industry and Enterprise, or more shortly. Economic 
Freedom, points in the right direction; and it may be used in 
the absence of a better. Of course this deliberate and free 
choice may lead to a certain departure from individual 
freedom when co-operation or combination seems to offer the 
best route to the desired end. The questions how far these 
deliberate forms of association are likely to destroy the 
freedom in which they had their origin and how far they 
are likely to be conducive to the public weal, lie beyond 
the scope of the present volume^. 

§ 5. This introductory chapter was followed in earlier 
editions by two short sketches : the one related to the growth 
of free enterprise and generally of economic freedom, and the 
other to the growth of economic science. They have no claim 
to be systematic histories, however compressed; they aim 
only at indicating some landmarks on the routes by which 
economic structure and economic thought have travelled to 
their present position. They are now transferred to Appen- 
dices A and B at the end of this volume, partly because their 
full drift can best be seen after some acquaintance has been 
made with the subject-matter of economics; and partly 
because in the twenty years, which have elapsed since they 
were first written, public opinion as to the position which the 
study of economic and social science should hold in a liberal 
education has greatly developed. There is less need now 
than formerly to insist that the economic problems of the 
present generation derive much of their subject-matter from 
technical and social changes that are of recent date, and that 
their form as well as their urgency assume throughout the 
effective economic freedom of the mass of the people. 

The relations of many ancient Greeks and Romans with 
the slaves of their households were genial and humane. But 
even in Attica the physical and moral wellbeing of the great 

They occupy a considerable place in the forthcoming volumes on Industry 
mnd Tradt, 



THE GROWTH OF ECONOMIC FREEDOM 


11 


body of the inhabitants was not accepted as a chief aim of the i, i, 5 . 
citizen. Ideals of life were high, but they concerned only a 
few: and the doctrine of value, which is full of complexities 
in the modem age, could then have been worked out on a 
plan; such as could be conceived to-day, only if nearly all 
manual work were superseded by automatic machines which 
required merely a definite allowance of steam-power and 
materials, and had no concern with the requirements of a 
full citizen’s life. Much of modem economics might indeed 
have been anticipated in the towns of the Middle Ages, in 
which an intelligent and daring spirit was for the first time 
combined with patient industry. But they were not left to 
work out their career in peace; and the world had to wait for 
the dawn of the new economic era till a whole nation was 
ready for the ordeal of economic freedom. 

England especially was gradually prepared for the task; The early 
but towards the end of the eighteenth century, the changes, 
which had so far been slow and gradual, suddenly became 
rapid and violent. Mechanical inventions, the concentration England, 
of industries, and a system of manufacturing on a large scale 
for distant markets broke up the old traditions of industry, 
and left everyone to bargain for himself as best he might; and 
at the same time they stimulated an increase of population 
for which no provision had been made beyond standing-room 
in factories and workshops. Thus free competition, or rather, 
freedom of industry and enterprise, was set loose to run, like 
a huge untrained monster, its wayward course. The abuse 
of their new power by able but uncultured business men led 
to evils on every side; it unfitted mothers for their duties, it 
weighed down children with overwork and disease; and in 
many places it degraded the race. Meanwhile the kindly 
meant recklessness of the poor law did even more to lower 
the moral and physical energy of Englishmen than the hard- 
hearted recklessness of the manufacturing discipline: for by 
depriving the people of those qualities which would fit them 
for the new order of things, it increased the evil and dimin- 
ished the good caused by the advent of free enterprise. 

And yet the time at which free enterprise was showing 
. . 11 1 1 /• 1 . . economic 

itself m an unnaturally harsh form, was the very time in science. 



12 


INTROPUCTIOK 


which economists were most lavish in their praises of it. 
This was partly because they saw clearly, what we of this 
generation have in a great measure forgotten, the cruelty of 
the yoke of custom and rigid ordinance which it had dis- 
placed; and partly because the general tendency of English- 
men at the time was to hold that freedom in all matters, 
political and social, was worth having at every cost except 
the loss of security. But partly also it was that the pro- 
ductive forces which free enterprise was giving to the nation, 
were the only means by which it could oiler a successful 
resistance to Napoleon. Economists therefore treated free 
enterprise not indeed as an unmixed good, but as a less evil 
than such regulation as was practicable at the time. 

Adhering to the lines of thought that had been started 
chiefly by mediaeval traders, and continued by French and 
English philosophers in the latter half of the eighteenth 
century, Ricardo and his followers developed a theory of the 
action of free enterprise (or, as they said, free competition), 
which contained many truths, that will be probably import- 
ant so long as the world exists. Their work was wonderfully 
complete within the narrow area which it covered. But 
much of the best of it consists of problems relating to rent 
and the value of corn : — problems on the solution of which 
the fate of England just then seemed to depend; but many 
of which, in the particular form in which they were worked 
out by Ricardo, have very little direct bearing on the 
present state of things. 

A good deal of the rest of their work was narrowed 
by its regarding too exclusively the peculiar condition of 
England at that time; and this narrowness has caused a 
reaction. So that now, when more experience, more leisure, 
and greater material resources have enabled us to bring free 
enterprise somewhat under control, to diminish its power 
of doing evil and increase its power of doing good, there is 
growing up among many economists a sort of spite against 
it. Some even incline to exaggerate its evils, and attribute 
to it the ignorance and suffering, which are the results either 
of tyranny and oppression in past ages, or of the misunder- 
standing and mismanagement of economic freedom. 



THE GROWTH OF ECONOMIC SCIENCE 


13 


Intermediate between these two extremes are the great i, i,6. 
body of economists who, working on parallel lines in many 
different countries, are bringing to their studies an im- 
biassed desire to ascertain the truth, and a willingness to 
go through with the long and heavy work by which alone 
scientific results of any value can be obtained. Varieties 
of mind, of temper, of training and of opportunities lead 
them to work in different ways, and to give their chief 
attention to different parts of the problem. AJl are bound 
more or less to collect and arrange facts and statistics relating 
to past and present times; and all are bound to occupy 
themselves more or less with analysis and reasoning on 
the basis of those facts which are ready at hand: but some 
find the former task the more attractive and absorbing, and 
others the latter. This division of labour, however, implies 
not opposition, but harmony of purpose. The work of all 
adds something or other to that knowledge, which enables us 
to understand the influences exerted on the quality and tone 
of man’s life by the manner in which he earns his livelihood, 
and by the character of that livelihood. 



CHAPTER II. 


I, n, 1. 

The chief 
motives of 
business 
life can be 
measured 
indirectly 
in money. 


THE SUBSTANCE OF ECONOMICS. 

§ 1 . Economics is a study of men as they live and move 
and think in the ordinary business of life. But it concerns 
itself chiefly with those motives which affect, most powerfully 
and most steadily, man’s conduct in the business part of his 
life. Everyone who is worth anything carries his higher 
nature with him into business; and, there as elsewhere, he is 
influenced by his personal affections, by his conceptions of 
duty and his reverence for high ideals. And it is true that 
the best energies of the ablest inventors and organizers of 
improved methods and appliances are stimulated by a noble 
emulation more than by any love of wealth for its own sake. 
But, for all that, the steadiest motive to ordinary business 
work is the desire for the pay which is the material reward 
of work. The pay may be on its way to be spent selfishly or 
unselfishly, for noble or base ends; and here the variety of 
human nature comes into play. But the motive is supplied 
by a definite amount of money: and it is this definite and 
exact money measurement of the steadiest motives in business 
life, which has enabled economics far to outrun every other 
branch of the study of man. Just as the chemist’s fine 
balance has made chemistry more exact than most other 
physical sciences; so this economist’s balance, rough and 
imperfect as it is, has made economics more exact than any 
other branch of social science. But of course economics 
cannot be compared with the exact physical sciences: for it 
deals with the ever changing and subtle forces of human 
nature^. 

> Some remarks on the relation of economics to the sum total of social science 
will be found in Appendix C, 1, 2. 



MEASUREMENT OF THE FORCE OF AN ECONOMIC MOTIVE 


16 


The advantage which economics has over other branches i, n, i. 
of social science appears then to arise from the fact that its 
special field of work gives rather larger opportunities for 
exact methods than any other branch. It concerns itself 
chiefly with those desires, aspirations and other affections of 
human nature, the outward manifestations of which appear 
as incentives to action in such a form that the force or 
quantity of the incentives can be estimated and measured 
with some approach to accuracy; and which therefore are in 
some degree amenable to treatment by scientific machinery. 

An opening is made for the methods and the tests of science 
as soon as the force of a person's motives — not the motives 
themselves — can be approximately measured by the sum of 
money, which he will just give up in order to secure a desired 
satisfaction; or again by the sum which is just required to 
induce him to undergo a certain fatigue. 

It is essential to note that the economist does not claim to Even 
measure any affection of the mind in itself, or directly; butp^^^ 
only indirectly through its effect. No one can compare and c^nbe^- 
measure accurately against one another even his own mental pared only 

® , , through the 

states at different times: and no one can measure the mental strong of 
states of another at all except indirectly and conjecturally by uveTSSch 
their effects. Of course various affections belong to man’s 
higher nature and others to his lower, and are thus different 
in kind. But, even if we confine our attention to mere 
physical pleasures and pains of the same kind, we find that 
they can only be compared indirectly by their effects. In 
fact, even this comparison is necessarily to some extent 
conjectural, unless they occur to the same person at the 
same time. 

For instance the pleasures which two persons derive from 
smoking cannot be directly compared: nor can even those 
which the same person derives from it at different times. 

But if we find a man in doubt whether to spend a few pence 
on a cigar, or a cup of tea, or on riding home instead of 
walking home, then we may follow ordinary usage, and say 
that he expects from them equal pleasures. 

If then we wish to compare even physical gratifications, 
we must do it not directly, but indirectly by the incentives 



16 


THE SUBSTANCE OP ECONOMICS 


and this 
indirect 
comparison 
can be 
applied to 
all classes 
of desire. 


Economics 
follows the 
practice of 
ordinary 
discourse. 


which they afford to action. If the desires to secure either 
of two pleasures will induce people in similar circumstances 
each to do just an hour’s extra work, or will induce men in 
the same rank of life and with the same means each to pay 
a shilling for it; we then may say that those pleasures are 
equal for our purposes, because the desires for them are 
equally strong incentives to action for persons under similar 
conditions. 

Thus measuring a mental state, as men do in ordinary 
life, by its motor-force or the incentive which it affords to 
action, no new difficulty is introduced by the fact that some 
of the motives of which we have to take account belong 
to man’s higher nature, and others to his lower. 

For suppose that the person, whom we saw doubting 
between several little gratifications for himself, had thought 
after a while of a poor invalid whom he would pass on his 
way home; and had spent some time in making up his mind 
whether he would choose a physical gratification for himself, 
or would do a kindly act and rejoice in another’s joy. As 
his desires turned now towards the one, now the other, there 
would be change in the quality of his mental states; and the 
philosopher is bound to study the nature of the change. 

But the economist studies mental states rather through 
their manifestations than in themselves; and if he finds they 
afford evenly balanced incentives to action, he treats them 
primd facie as for his purpose equal. He follows indeed 
in a more patient and thoughtful way, and with greater 
precautions, what everybody is always doing every day in 
ordinary life. He does not attempt to weigh the real value 
of the higher affections of our nature against those of our 
lower: he does not balance the love for virtue against the 
desire for agreeable food. He estimates the incentives to 
action by their effects just in the same way as people do in 
common life. He follows the course of ordinary conversation, 
differing from it only in taking more precautions to make 
clear the limits of his knowledge as he goes. He reaches his 
provisional conclusions by observations of men in general 
under given conditions without attempting to fathom the 
mental and spiritual characteristics of individuals. But he 



THE QUALITY OF A MOTIVE EVADES MEASUREMENT 


17 


does not ignore the mental and spiritual side of life. On the i,n,2. 
contrary, even for the narrower uses of economic studies, it 
is important to know whether the desires which prevail are 
such as will help to build up a strong and righteous 
character. And in the broader uses of those studies, when 
they are being applied to practical problems, the economist, 
like every one else, must concern himself with the ultimate 
aims of man, and take account of differences in real value 
between gratifications that are equally powerful incentives to 
action and have therefore equal economic measures. A study 
of these measures is only the starting-point of economics: 
but it is the starting-point^. 

§ 2. There are several other limitations of the measure- 
ment of motive by money to be discussed. The first of 
these arises from the necessity of taking account of the 

^ The objections raised by some philosophers to speaking of two pleasures as 
equal, under any circumstances, seem to apply only to uses of the phrase other 
than those with which the economist is concerned. It has however unfortunately 
happened that the customary uses of economic terms have sometimes suggested 
the belief that economists are adherents of the philosophical system of Hedonism 
or of Utilitarianism. For, while they have generally taken for granted that the 
greatest pleasures are those which come with the endeavour to do one’s duty, they 
have spoken of “pleasures” and “pains” as supplying the motives to all action; 
and they have thus brought themselves under the censure of those philosophers, 
with whom it is a matter of principle to insist that the desire to do one’s duty is 
a different thing from a desire for the pleasure which, if one happens to think of 
the matter at all, one may expect from doing it; though perhaps it may be not 
incorrectly described as a desire for “seK-satisf action” or “the satisfaction 
of the permanent self.” (See for instance T. H. Green, Prolegomena to Ethics^ 
pp. 165—6.) 

It is clearly not the part of economics to appear to take a side in ethical 
controversy: and since there is a general agreement that aU incentives to action, 
in so far as they are conscious desires at all, may without impropriety be spoken 
of shortly as desires for “satisfaction,” it may perhaps be well to use this word 
instead of “pleasure,” when occasion arises for referring to the aims of all 
desires, whether appertaining to man’s higher or lower nature. The simple 
antithesis to satisfaction is “dissatisfaction”: but perhaps it may be well to use 
the shorter and equally colourless word “detriment” in its place. 

It may however be noted that some followers of Bentham (though perhaps not 
Bentham himself) made this large use of “pain and pleasure” serve as a bridge 
by which to pass from individualistic Hedonism to a complete ethical creed, without 
recognizing the necessity for the introduction of an independent major premiss; 
and for such a premiss the necessity would appear to be absolute, although 
opinions will perhaps always differ as to its form. Some will regard it as the 
Categorical Imperative; while others will regard it as a simple belief that, 
whatever be the origin of our moral instincts, their indications are borne out by a 
verdict of the experience of mankind to the effect that true happiness is not to be 
had without seU-reepect, and that self-respect is to be had only on the condition 
of endeavouring so to live as to promote the progress of the human race. 



18 THE SUBSTANCE OF ECONOIOCB 

I, n, 2. variations in the amount of pleasure, or other satisfaction, 
represented by the same sum of money to different persons 
and under different circumstances. 

Theiame A shilling may measure a greater pleasure (or other 
measures Satisfaction) at one time than at another even for the 
satS^ same person; because money may be more plentiful with 
tcT^eraons because his sensibility may vary^. And persons 

with equal whose antecedents are similar, and who are outwardly like 
' another, are often affected in very different ways 

by similar events. When, for instance, a band of city 
school children are sent out for a day’s holiday in the 
country, it is probable that no two of them derive from it 
enjoyment exactly the same in kind, or equal in intensity. 
The same surgical operation causes different amounts of pain 
to different people. Of two parents who are, so far as we can 
tell, equally affectionate, one will suffer much more than the 
other from the loss of a favourite son. Some who are not 
very sensitive generally are yet specially susceptible to par- 
ticular kinds of pleasure and pain; while differences in nature 
and education make one man’s total capacity for pleasure or 
pain much greater than another’s. 

It would therefore not be safe to say that any two men 
with the same income derive equal benefit from its use; or 
that they would suffer equal pain from the same diminution 
of it. Although when a tax of £1 is taken from each of two 
persons having an income of £300 a-year, each will give up 
that £1 worth of pleasure (or other satisfaction) which he 
can most easily part with, i.e. each will give up what is 
measured to him by just £1; yet the intensities of the 
satisfaction given up may not be nearly equal, 
but these Nevertheless, if we take averages sufficiently broad to 

differences t ^ t t t 

may gene- cause the personal peculiarities of mdividuals to counter- 
n^fected balance one another, the money which people of equal incomes 
wMider obtain a benefit or avoid an injury is a good 

the average measure of the benefit or injury. If there are a thousand 

of large , • 

numbers persous living in Sheffield, and another thousand in Leeds, 
of people, about £100 a-year, and a tax of £1 is levied on 

all of them; we may be sure that the loss of pleasure or other 

^ Compare Edgeworth’s Mathematical Psychics. 



INDIVIDUAL PECULIARITIES PROVISIONALLY NEGLECTED 


19 


injury wliich the tax will cause in Sheffield is of about equal i, ix,2. 
importance with that which it will cause in Leeds: and 
anything that increased all the incomes by £1 would give 
command over equivalent pleasures and other benefits in the 
two towns. This probability becomes greater still if all of 
them are adult males engaged in the same trade; and there- 
fore presumably somewhat similar in sensibility and tempera- 
ment, in taste and education. Nor is the probability much 
diminished, if we take the family as our unit, and compare 
the loss of pleasure that results from diminishing by £1 the 
income of each of a thousand families with incomes of £100 
a-year in the two places. 

Next we must take account of the fact that a stronger The sig- 

• • nific&nce 

incentive will be required to induce a person to pay a of a given 
given price for anything if he is poor than if he is rich, ^"^terfor 
A shilling is the measure of less pleasure, or satisfaction of 
any kind, to a rich man than to a poor one. A rich man rich, 
in doubt whether to spend a shilling on a single cigar, is 
weighing against one another smaller pleasures than a poor 
man, who is doubting whether to spend a shilling on a 
supply of tobacco that will last him for a month. The clerk 
with £100 a-year will walk to business in a much heavier 
rain than the clerk with £300 a-year; for the cost of a ride 
by tram or omnibus measures a greater benefit to the poorer 
man than to the richer. If the poorer man spends the 
money, he will suffer more from the want of it afterwards 
than the richer would. The benefit that is measured in the 


poorer man’s mind by the cost is greater than that measured 
by it in the richer man’s mind. 

But this source of error also is lessened when we are able 
to consider the actions and the motives of large groups 
of people. If we know, for instance, that a bank failure 
has taken £200,000 from the people of Leeds and £100,000 
from those of Sheffield, we may fairly assume that the 
suffering caused in Leeds has been about twice as great as 
in Sheffield; unless indeed we have some special reason 
for believing that the shareholders of the bank in the one 
town were a richer class than those in the other; or that the 


But t!iis 
is not im- 
portant in 
comparing 
two groups 
composed 
of rich and 
poor in 
tike pro- 
portions. 



!0 


THE SUBSTANCE OP ECONOMICS 


I, n, 3. 


Increase of 
material 
means 
sometimes 
a fair 
measure 
of real 
progress. 


Action is 
largely 
ruled by 
habit, 


especiaUy 
as regards 
business 
conduct. 


loss of employment caused by it pressed in uneven propor- 
tions on the working classes in the two towns. 

By far the greater number of the events with which 
economics deals a£[ect in about equal proportions all the 
different classes of society; so that if the money measures 
of the happiness caused by two events are equal, it is reason- 
able and in accordance with common usage to regard the 
amounts of the happiness in the two cases as equivalent. 
And, further, as money is likely to be turned to the higher 
uses of life in about equal proportions, by any two large 
groups of people taken without special bias from any two 
parts of the western world, there is even some 'primd fade 
probability that equal additions to their material resources 
will make about equal additions to the fulness of life, and 
the true progress of the human race. 

§ 3. To pass to another point. When we speak of the 
measurement of desire by the action to which it forms the 
incentive, it is not to be supposed that we assume every 
action to be deliberate, and the outcome of calculation. For 
in this, as in every other respect, economics takes man just 
as he is in ordinary life; and in ordinary life people do 
not weigh beforehand the results of every action, whether 
the impulses to it come from their higher nature or their 
lower^. 

Now the side of life with which economics is specially 
concerned is that in which man’s conduct is most deliberate, 
and in which he most often reckons up the advantages and 

' This is specially true of that group of gratifications, which is sometimes 
named **the pleasures of the chase.” They include not only the light-hearted 
emulation of games and pastimes, of hunts and steeplechases, but the more serious 
contests of professional and business life: and they will occupy a good deal of our 
attention in discussions of the causes that govern wages and profits, and forms of 
industrial organization. 

Some people are of wayward temperament, and could give no good account 
even to themselves of the motives of their action. But if a man is steadfast and 
thoughtful, even his impulses are the products of habits which he has adopted 
more or less deliberately. And, whether these impulses are an expression of his 
higher nature or not; whether they spring from mandates of his conscience, the 
pressure of social connection, or the claims of his bodily wants, he yields a certain 
relative precedence to them without reflection now, because on previous occasions 
he has decided deliberately to yield that relative precedence. The predominant 
attractiveness of one course of action over others, even when not the result of 
calculation at the time, is the product of more or leu deliberate decisions made by 
him before in somewhat similar cases. 



ACCOUNT TO BE TAKEN OP HABIT AND CUSTOM 


21 


disadvantages of any particular action before he enters on it. i, n, 8. 
And further it is that side of his life in which, when he 
does follow habit and custom, and proceeds for the moment 
without calculation, the habits and customs themselves are 
most nearly sure to have arisen from a close and careful 
watching the advantages and disadvantages of different 
courses of conduct. There will not in general have been any 
formal reckoning up of two sides of a balance-sheet: but 
men going home from their day’s work, or in their social 
meetings, will have said to one another, ‘^It did not answer 
to do this, it would have been better to do that,” and so on. 

What makes one course answer better than another, will not 
necessarily be a selfish gain, nor any material gain; and it 
will often have been argued that ‘‘though this or that plan 
saved a little trouble or a little money, yet it was not fair 
to others,” and “it made one look mean,” or “it made one 
feel mean.” 

It is true that when a habit or a custom, which has 
grown up under one set of conditions, influences action under 
other conditions, there is so far no exact relation between the 
effort and the end which is attained by it. In backward 
countries there are still many habits and customs similar to 
those that lead a beaver in confinement to build himself 
a dam; they are full of suggestiveness to the historian, and 
must be reckoned with by the legislator. But in business 
matters in the modern world such habits quickly die 
away. 

Thus then the most systematic part of people’s lives is 
generally that by which they earn their living. The work 
of all those engaged in any one occupation can be carefully 
observed; general statements can be made about it, and 
tested by comparison with the results of other observations; 
and numerical estimates can be framed as to the amount 
of money or general purchasing power that is required to 
supply a sufficient motive for them. 

The unwillingness to postpone enjoyment, and thus 
to save for future use, is measured by the interest on 
accumulated wealth which just affords a sufficient incen- 
tive to save for the future. This measurement presents 



22 


THE SUBSTANCE 07 ECONOMICS 


1 , 11 , 4 . 


The 

motives 
that lead 
to the 
pursuit of 
money may 
themselves 
be noble. 


And there 
is no truth 
in the 
common 
opinion 
that 

economics 
regards 
man as 
absorbed 
in a selhsh 
pursuit of 
wealth. 


The desire 
for money 
does not 
exclude 
other in- 
fluences; 


however some special difficulties, the study of which must be 
postponed. 

§ 4 . Here, as elsewhere, we must bear in mind that the 
desire to make money does not itself necessarily proceed 
from motives of a low order, even when it is to be spent 
on oneself. Money is a means towards ends, and if the ends 
are noble, the desire for the means is not ignoble. The lad 
who works hard and saves all he can, in order to be able to 
pay his way afterwards at a University, is eager for money; 
but his eagerness is not ignoble. In short, money is 
general purchasing power, and is sought as a means to all 
kinds of ends, high as well as low, spiritual as well as 
material^. 

Thus though it is true that money” or “general pur- 
chasing power” or “command over material wealth,” is the 
centre around which economic science clusters ; this is so, not 
because money or material wealth is regarded as the main 
aim of human effort, nor even as affording the main subject- 
matter for the study of the economist, but because in this 
world of ours it is the one convenient means of measuring 
human motive on a large scale. If the older economists 
had made this clear, they would have escaped many grievous 
misrepresentations; and the splendid teachings of Carlyle and 
Euskin as to the right aims of human endeavour and the 
right uses of wealth, would not then have been marred by 
bitter attacks on economics, based on the mistaken belief 
that that science had no concern with any motive except the 
selfish desire for wealth, or even that it inculcated a policy of 
sordid selfishness^. 

Again, when the motive to a man’s action is spoken of as 
supplied by the money which he will earn, it is not meant 
that his mind is closed to all other considerations save those 

* See an admirable essay by Cliffe Leslie on The Love of Money, We do 
indeed hear of people who pursue money for its own sake without caring for what 
it win purchase, especially at the end of a long life spent in business: but in this 
as in other cases the habit of doing a thing is kept up after the purpose for which 
it was originally done has ceased to exist. The possession of wealth gives such 
people a feeling of power over their fellow-creatures, and insures them a sort of 
envious respect in which they find a bitter but strong pleasure. 

* In fact a world can be conceived in which there is a science of economics 
very much like our own, but in it there is no money of any sort. See Appendices 
B, 8 and D, 2. 



MAN NOT ASSUMED TO BE ABSORBED IN PURSUIT OP GAIN 


23 


of gain. For even the most purely business relations of i, 
life assume honesty and good faith; while many of them 
take for granted, if not generosity, yet at least the absence 
of meanness, and the pride which every honest man takes in 
acquitting himself well. Again, much of the work by which such as the 
people earn their living is pleasurable in itself ; and there is afiwd^ by 
truth in the contention of socialists that more of it might be iJ^oi7and 
made so. Indeed even business work, that seems at first instinct 
sight unattractive, often yields a great pleasure by offering 
scope for the exercise of men’s faculties, and for their in- 
stincts ol emulation and of power. For just as a racehorse 
or an athlete strains every nerve to get in advance of his 
competitors, and delights in the strain; so a manufacturer 
or a trader is often stimulated much more by the hope of 
victory over his rivals than by the desire to add something 
to his fortune^. 

§ 5. It has indeed always been the practice of economists Econo- 
to take careful account of all the advantages which attract always 
people generally towards an occupation, whether they appear for aTvan- 
in a money form or not. Other things being equal, people occupation 
will prefer an occupation in which they do not need to soil other than 

^ A •/ yyi Q ^ ri 1 

their hands, in which they enjoy a good social position, and gain; 
so on; and since these advantages affect, not indeed every 
one exactly in the same way, but most people in nearly 
the same way, their attractive force can be estimated and 
measured by the money wages to which they are regarded 
as equivalent. 

Again, the desire to earn the approval, to avoid the and they 
contempt of those around one is a stimulus to action which allowed for 
often works with some sort of uniformity in any class of 
persons at a given time and place; though local and tem- 
porary conditions influence greatly not only the intensity 
of the desire for approval, but also the range of persons 
whose approval is desired. A professional man, for instance, 
or an artisan will be very sensitive to the approval or 
disapproval of those in the same occupation, and care little 
for that of other people; and there are many economic 

Some remarks on the large scope of economics as conceived in Germany will 
be found in Appendix 1), 3. 



24 


THE SUBSTANCE OF ECONOMICS 


I, n, 5. problems, the discussion of which would be altogether unreal, 
if care were not taken to watch the direction and to estimate 
pretty closely the force of motives such as these, 
andf^iiy As there may be a taint of selfishness in a man’s desire 
* * to do what seems likely to benefit his fellow-workers, so 

there may be an element of personal pride in his desire that 
his family should prosper during his life and after it. But 
still the family affections generally are so pure a form of 
altruism, that their action might have shown little sem- 
blance of regularity, had it not been for the uniformity in 
the family relations themselves. As it is, their action is 
fairly regular; and it has always been fully reckoned with 
by economists, especially in relation to the distribution of 
the family income between its various members, the expenses 
of preparing children for their future career, and the 
accumulation of wealth to be enjoyed after the death of 
him by whom it has been earned. 

It is then not the want of will but the want of power, 
that prevents economists from reckoning in the action of 
motives such as these; and they welcome the fact that some 
kinds of philanthropic action can be described in statistical 
returns, and can to a certain extent be reduced to law, if 
sufficiently broad averages are taken. For indeed there is 
scarcely any motive so fitful and irregular, but that some 
law with regard to it can be detected by the aid of wide and 
patient observation. It would perhaps be possible even now 
to predict with tolerable closeness the subscriptions that a 
population of a hundred thousand Englishmen of average 
wealth will give to support hospitals and chapels and 
missions; and, in so far as this can be done, there is a basis 
for an economic discussion of supply and demand with 
reference to the services of hospital nurses, missionaries and 
other religious ministers. It will however probably be 
always true that the greater part of those actions, which are 
due to a feeling of duty and love of one’s neighbour, cannot 
be classed, reduced to law and measured; and it is for this 
reason, and not because they are not based on self-interest, 
that the machinery of economics cannot be brought to bear 
on them. 



ECONOMICS CONCERNED WITH ALTRUISTIC MOTIVES 


26 


§ 6. Perhaps the earlier English economists confined their i, n, 6, 7. 
attention too much to the motives of individual action. But xhe 
in fact economists, like all other students of social science, 
are concerned with individuals chiefly as members of the action are 

of great 

social organism. As a cathedral is something more than the and grow- 
stones of which it is made, as a person is something more 
than a series of thoughts and feelings, so the life of society is 
something more than the sum of the lives of its individual 
members. It is true that the action of the whole is made 
up of that of its constituent parts; and that in most 
economic problems the best starting-point is to be found in 
the motives that affect the individual, regarded not indeed 
as an isolated atom, but as a member of some particular 
trade or industrial group; but it is also true, as German 
writers have well urged, that economics has a great and an 
increasing concern in motives connected with the collective 
ownership of property, and the collective pursuit of important 
aims. The growing earnestness of the age, the growing 
intelligence of the mass of the people, and the growing 
power of the telegraph, the press, and other means of 
communication are ever widening the scope of collective 
action for the public good; and these changes, together with 
the spread of the co-operative movement, and other kinds of 
voluntary association are growing up under the influence of 
various motives besides that of pecuniary gain: they are ever 
opening to the economist new opportunities of measuring 
motives whose action it had seemed impossible to reduce to 
any sort of law. 

But in fact the variety of motives, the difficulties of 
measuring them, and the manner of overcoming those 
difficulties are among the chief subjects with which we shall 
be occupied in this treatise. Almost every point touched in 
the present chapter will need to be discussed in fuller detail 
with reference to some one or more of the leading problems 
of economics. 

§7. To conclude provisionally: economists study the Econo- 
actions of individuals, but study them in relation to social the 
rather than individual life; and therefore concern themselves member* ^ 
but little with personal peculiarities of temper and character, ot an 



26 


THE SUBSTANCE OF ECONOMICS 


I, n, 7. 

industrial 

group; 


and mea- 
sure the 
play of 
motives in 
demand 
and supply 
at first in 
simple 
cases, 


and 

afterwards 
in more 
complex 
cases. 


They watch carefully the conduct of a whole class of people, 
sometimes the whole of a nation, sometimes only those living 
in a certain district, more often those engaged in some 
particular trade at some time and place: and by the aid of 
statistics, or in other ways, they ascertain how much money 
on the average the members of the particular group, they are 
watching, are just willing to pay as the price of a certain 
thing which they desire, or how much must be offered to 
them to induce them to undergo a certain effort or abstinence 
that they dislike. The measurement of motive thus obtained 
is not indeed perfectly accurate; for if it were, economics 
would rank with the most advanced of the physical sciences; 
and not, as it actually does, with the least advanced. 

But yet the measurement is accurate enough to enable 
experienced persons to forecast fairly well the extent of the 
results that will follow from changes in which motives of 
this kind are chiefly concerned. Thus, for instance, they can 
estimate very closely the payment that will be required to 
produce an adequate supply of labour of any grade, from 
the lowest to the highest, for a new trade which it is pro- 
posed to start in any place. When they visit a factory of a 
kind that they have never seen before, they can tell within a 
shilling or two a week what any particular worker is earning, 
by merely observing how far his is a skilled occupation and 
what strain it involves on his physical, mental and moral 
faculties. And they can predict with tolerable certainty 
what rise of price will result from a given diminution of the 
supply of a certain thing, and how that increased price will 
react on the supply. 

And, starting from simple considerations of this kind, 
economists go on to analyse the causes which govern the 
local distribution of different kinds of industry, the terms on 
which people living in distant places exchange their goods 
with one another, and so on: and they can explain and 
predict the ways in which fluctuations of credit will affect 
foreign trade; or again the extent to which the burden of a 
tax will be shifted from those on whom it is levied, on to 
those for whose wants they cater; and so on. 

In all this they deal with man as he is: not with an 



PROVISIONAL CONCLUSIONS 


27 


abstract or “economic” man; but a man of flesh and blood. . I, n, 7. 
They deal with a man who is largely influenced by egoistic They iai 
motives in his business life to a great extent with reference ““h <fne 
to them; but who is also neither above vanity and reckless- 
ness, nor below delight in doing his work well for its own 
sake, or in sacrificing himself for the good of his family, his life of a 
neighbours, or his country; a man who is not below the love nTt a” 
of a virtuous life for its own sake. They deal with man as he 
is: but being concerned chiefly with those aspects of life in 
which the action of motive is so regular that it can be pre- 
dicted, and the estimate of the motor-forces can be verified 
by results, they have established their work on a scientific 
basis. 

For in the first place, they deal with facts which can The 
be observed, and quantities which can be measured and eco^miL 
recorded; so that when differences of opinion arise withJ°j^®^^ 
regard to them, the differences can be brought to the test 
of public and well-established records; and thus science ap^eai^to 
obtains a solid basis on which to work. In the second external 
place, the problems, which are grouped as economic, because f^®inteSiai 
they relate specially to man’s conduct under the influence of bomo- 
motives that are measurable by a money price, are found to 
make a fairly homogeneous group. Of course they have a 
great deal of subject-matter in common: that is obvious 
from the nature of the case. But, though not so obvious 
d 'priori, it will also be found to be true that there is a 
fundamental unity of form underlying all the chief of them; 
and that in consequence, by studying them together, the 
same kind of economy is gained, as by sending a single 
postman to deliver all the letters in a certain street, instead 
of each one entrusting his letters to a separate messenger. 

For the analyses and organized processes of reasoning that 
are wanted for any one group of them, will be found generally 
useful for other groups. 

The less then we trouble ourselves with scholastic in- 
quiries as to whether a certain consideration comes within 
the scope of economics, the better. If the matter is important 
let us take account of it as far as we can. If it is one as 
to which there exist divergent opinions, such as cannot be 



28 


THE SUBSTANCE OP ECONOMICS 


I, n, 7. brought to the test of exact and well-ascertained knowledge; 
if it is one on which the general machinery of economic 
analysis and reasoning cannot get any grip, then let us leave 
it aside in our purely economic studies. But let us do so 
simply because the attempt to include it would lessen the 
certainty and the exactness of our economic knowledge 
without any commensurate gain; and remembering always 
that some sort of account of it must be taken by our ethical 
instincts and our common sense, when they as ultimate 
arbiters come to apply to practical issues the knowledge 
obtained and arranged by economics and other sciences. 



CHAPTER III. 


ECONOMIC GENERALIZATIONS OR LAWS. 

§1. It is the business of economics, as of almost every i, i. 
other science, to collect facts, to arrange and interpret them, Economics 
and to draw inferences from them. ‘‘ Observation and de- UiXc^tion 
scription, definition and classification are the preparatory 
activities. But what we desire to reach thereby is a know- 
ledge of the interdependence of economic phenomena In- 

duction and deduction are both needed for scientific thought 
as the right and left foot are both needed for walking^.'’ The 
methods required for this twofold work are not peculiar to 
economics; they are the common property of all sciences. 

All the devices for the discovery of the relations between 
cause and effect, which are described in treatises on scientific 
method, have to be used in their turn by the economist: 
there is not any one method of investigation which can 
properly be called the method of "economics; but every 
method must be made serviceable in its proper place, either 
singly or in combination with others. Amd as the number of 
combinations that can be made on the chess-board, is so great 
that probably no two games exactly alike were ever played; 
so no two games which the student plays with nature to 
wrest from her her hidden truths, which were worth playing 
at all, ever made use of quite the same methods in quite the 
same way. 

But in some branches of economic inquiry and for some but in 
purposes, it is more urgent to ascertain new facts, than to propor- 
trouble ourselves with the mutual relations and explanations dSwint 
of those which we already have. While in other branches 

^ Scbmoller in the article on VolkswirUchafl in Conrad’s HandwSrterbueh. 



30 


ECONOmO GENERALIZATIONS OR LAWS 


I, m, 2. there is still so much uncertainty as to whether those causes 
of any event which lie on the surface and suggest themselves 
at first are both true causes of it and the only causes of it, 
that it is even more urgently needed to scrutinize our 
reasoning about facts which we already know, than to seek 
for more facts. 

Analytical For this and other reasons, there always has been and 
historical there probably always will be a need for the existence side 
are°both ^7 Workers with different aptitudes and different 

needed and aims, some of whom give their chief attention to the ascer- 
each other, tainment of facts, while others give their chief attention to 
scientific analysis; that is taking to pieces complex facts, 
and studying the relations of the several parts to one another 
and to cognate facts. It is to be hoped that these two 
schools will always exist; each doing its own work thoroughly, 
and each making use of the work of the other. Thus best 
may we obtain sound generalizations as to the past and 
trustworthy guidance from it for the future, 
imagina- §2. Those physical sciences, which have progressed 
on org^an^^ most beyond the points to which they were brought by the 
oTfacts^^ brilliant genius of the Greeks, are not all of them strictly 
frames speaking ‘‘exact sciences.” But they all aim at exactness, 

state- That is they all aim at precipitating the result of a multi- 

and some tude of observations into provisional statements, which are 
are Elected sufficiently definite to be brought under test by other 
observations of nature. These statements, when first put 
forth, seldom claim a high authority. But after they have 
been tested by many independent observations, and especially 
after they have been applied successfully in the prediction 
of coming events, or of the results of new experiments, 
they graduate as laws. A science progresses by increasing 
the number and exactness of its laws; by submitting them 
to tests of ever increasing severity; and by enlarging their 
scope tiU a single broad law contains and supersedes a 
number of narrower laws, which have been shown to be 
special instances of it. 

In so far as this is done by any science, a student of it 
can in certain cases say with authority greater than his own 
(greater perhaps than that of any thinker, however able, who 



LAWS OF PHYSICAL SCIBNCB VABY IN PRECISION SI 

relies on hiB own resources and neglects the results obtained i, m, 3. 
by previous workers), what results are to be expected from 
certain conditions, or what are the true causes of a certain 
known event. 

Although the subject-matter of some progressive physical 
sciences is not, at present at least, capable of perfectly exact 
measurement; yet their progress depends on the multi- 
tudinous co-operation of armies of workers. They measure 
their facts and define their statements as closely as they 
can: so that each investigator may start as nearly as possible 
where those before him left ofE. Economics aspires to a place 
in this group of sciences: because though its measurements 
axe seldom exact, and are never final; yet it is ever working 
to make them more exact, and thus to enlarge the range of 
matters on which the individual student may speak with the 
authority of his science. 

§ 3. Let us then consider more closely the nature of Nearly all 
economic laws, and their limitations. Every cause has a science are 
tendency to produce some definite result if nothing occurs to 
hinder it. Thus gravitation tends to make things fall to the ^encies. 
ground: but when a balloon is full of gas lighter than air, 
the pressure of the air will make it rise in spite of the 
tendency of gravitation to make it fall. The law of gravita- 
tion states how any two things attract one another; how 
they tend to move towards one another, and will move 
towards one another if nothing interferes to prevent them. 

The law of gravitation is therefore a statement of tendencies. 

It is a very exact statement — so exact that mathe- The exact 
maticians can calculate a Nautical Almanac, which will show simple 
the moments at which each satellite of Jupiter will hide 
itself behind Jupiter. They make this calculation for 
many years beforehand; and navigators take it to sea, and 
use it in finding out where they are. Now there are no 
economic tendencies which act as steadily and can be 
measured as exactly as gravitation can: and consequently 
there are no laws of economics which can be compared for 
precision with the law of gravitation. 

But let us look at a science less exact than astronomy. The 
Tha science of the tides explains how the tide rises and falls 



)2 


1, m, 8. 

laws of 

complex 

sciouces. 


The 

science of 
man is 
complex 
and its 
laws are 
inexact. 


ECONOMIC GENERALIZATIONS OR LAWS 

twice a day under the action of the sun and the moon: how 
there are strong tides at new and full moon, and weak tides 
at the moon’s first and third quarter; and how the tide 
running up into a closed channel, like that of the Severn, 
will be very high; and so on. Thus, having studied the lie 
of the land and the water all round the British isles, people 
can calculate beforehand when the tide will probably be at 
its highest on any day at London Bridge or at Gloucester; 
and how high it will be there. They have to use the word 
probably, which the astronomers do not need to use when 
talking about the eclipses of Jupiter’s satellites. For, though 
many forces act upon Jupiter and his satellites, each one of 
them acts in a definite manner which can be predicted 
beforehand: but no one knows enough about the weather to 
be able to say beforehand how it will act. A heavy down- 
pour of rain in the upper Thames valley, or a strong 
north-east wind in the German Ocean, may make the tides 
at London Bridge differ a good deal from what had been 
expected. 

The laws of economics are to be compared with the laws 
of the tides, rather than with the simple and exact law of 
gravitation. For the actions of men are so various and 
uncertain, that the best statement of tendencies, which we can 
make in a science of human conduct, must needs be inexact 
and faulty. This might be urged as a reason against making 
any statements at all on the subject; but that would be 
almost to abandon life. Life is human conduct, and the 
thoughts and emotions that grow up around it. By the 
fundamental impulses of our nature we all — high and low, 
learned and unlearned — are in our several degrees constantly 
striving to understand the courses of human action, and to 
shape them for our purposes, whether selfish or unselfish, 
whether noble or ignoble. And since we must form to 
ourselves some notions of the tendencies of human action, 
our choice is between forming those notions carelessly and 
forming them carefully. The harder the task, the greater 
the need for steady patient inquiry; for turning to account 
the experience, that has been reaped by the more advanced 
physical sciences; and for framing as best we can well 



LIMITATIONS OF ECONOMIC LAWS 


33 


thought-out estimates, or provisional laws, of the tendencies i, m, 4. 
of human action. 

§4. The term ‘‘law” means then nothing more than 
a general proposition or statement of tendencies, more or 
less certain, more or less definite. Many such statements 
are made in every science: but we do not, indeed we can 
not, give to all of them a formal character and name them 
as laws. We must select; and the selection is directed 
less by purely scientific considerations than by practical 
convenience. If there is any general statement which we 
want to bring to bear so often, that the trouble of quoting 
it at length, when needed, is greater than that of burdening 
the discussion with an additional formal statement and an 
additional technical name, then it receives a special name, 
otherwise not^. 

Thus a law of social science, or a Social Law, is a state- Definition 
ment of social tendencies; that is, a statement that a certain soJtai, 
course of action may be expected under certain conditions 
from the members of a social group. 

Economic laws, or statements of economic tendencies, are and 
those social laws which relate to branches of conduct 
which the strength of the motives chiefly concerned can be 
measured by a money price. 

There is thus no hard and sharp line of division between 
those social laws which are, and those which are not, to be 
regarded also as economic laws. For there is a continuous 
gradation from social laws concerned almost exclusively with 
motives that can be measured by price, to social laws in 
which such motives have little place; and which are therefore 
generally as much less precise and exact than economic 
laws, as those are than the laws of the more exact physical 
sciences. 

Corresponding to the substantive “law” is the adjective 
“legal.” But this term is used only in connection with 
“law” in the sense of an ordinance of government; not in 

^ The relation of ** natural and economic laws/* is ezhaustiyely discussed 
by Neumann {Zeitschrift fur di$ gesamt$ StaatswUsenschaftf 1892) who concludes 
(p. 464) that there is no other word than Law (Oesetz) to express those statements 
of tendency, which play so important a part in natural as well as economic science. 

See also Wagner {Qrwndlegung, §§ 86 — 91). 


2 



S4 


1 , 01 , 4 . 


Definition 
of normal 
economic 
action. 


The term 

Normal 

implies 

hannony 

with 

whatever 
conditions 
happen to 
be under 
discussion. 


Thus 
normal 
conditions 
mav imply 
hign wages 
or low 
wages; 


ECONOMIC GENERALIZATIONS OR LAWS 

connection with “law** the sense of a statement of relation 
between cause and effect. The adjective used for this 
purpose is derived from “norma/* a term which is nearly 
equivalent to “law/* and might perhaps with advantage be 
substituted for it in scientific discussions. And following 
our definition of an economic law, we may say* that the 
course of action which may be expected under certain 
conditions from the members of an industrial group is the 
normal action of the members of that group relatively to those 
conditions. 

This use of the term Normal has been misunderstood; and 
it may be well to say something as to the unity in difference 
which underlies various uses of the term. When we talk of a 
Good man or a Strong man, we refer to excellence or strength 
of those particular physical mental or moral qualities which 
are indicated in the context. A strong judge has seldom the 
same qualities as a strong rower; a good jockey is not always 
of exceptional virtue. In the same way every use of the 
term normal implies the predominance of certain tendencies 
which appear likely to be more or less steadfast and persistent 
in their action over those which are relatively exceptional 
and intermittent. Illness is an abnormal condition of man: 
but a long life passed without any illness is abnormal. 
During the melting of the snows, the Rhine rises above its 
normal level: but in a cold dry spring when it is less than 
usual above that normal level, it may be said to be abnormally 
low (for that time of year). In all these cases normal results 
are those which may be expected as the outcome of those 
tendencies which the context suggests; or, in other words, 
which are in accordance with those “ statements of tendency,** 
those Laws or Norms, which are appropriate to the context. 

This is the point of view from which it is said that normal 
economic action is that which may be expected in the long 
run under certain conditions (provided those conditions are 
persistent) from the members of an industrial group. It 
is normal that bricklayers in most parts of England are 
willing to work for lOd. an hour, but refuse to work 
for 7d. In Johannesburg it may be normal that a brick- 
layer should refuse work at much less than £1 a day. The 



EELATIVITY OF THE TERM NORMAL 


35 


normal price of bona fide fresh laid eggs may be taken to be i,in,4. 
a penny when nothing is said as to the time of the year: 
and yet threepence may be the normal price in town during 
January; and twopence may be an abnormally low price 
then, caused by “unseasonable*^ warmth. 

Another misunderstanding to be guarded against arises they may 
from the notion that only those economic results are normal, p^e^sence^ 
which are due to the undisturbed action of free competition, absent 
But the term has often to be applied to conditions in which eager 

, compe- 

perfectly free competition does not exist, and can hardly even tition. 
be supposed to exist; and even where free competition is 
most dominant, the normal conditions of every fact and 
tendency will include vital elements that are not a part of 
competition nor even akin to it. Thus, for instance, the 
normal arrangement of many transactions in retail and 
wholesale trade, and on Stock and Cotton Exchanges, rests 
on the assumption that verbal contracts, made without 
witnesses, will be honourably discharged; and in countries in 
which this assumption cannot legitimately be made, some 
parts of the Western doctrine of normal value are inapplicable. 

Again, the prices of various Stock Exchange securities are 
afiected “normally** by the patriotic feelings not only of the 
ordinary purchasers, but of the brokers themselves : and so on. 

Lastly it is sometimes erroneously supposed that normal 
action in economics is that which is right morally. But 
that is to be understood only when the context implies that 
the action is being judged from the ethical point of view. 

When we are considering the facts of the world, as they are, 
and not as they ought to be, we shall have to regard as 
“normal** to the circumstances in view, much action which Nomai 
we should use our utmost efforts to stop. For instance, the not always 
normal condition of many of the very poorest inhabitants of 
a large town is to be devoid of enterprise, and unwilling to 
avail themselves of the opportunities that may offer for a 
healthier and less squalid life elsewhere; they have not the 
strength, physical, mental and moral, required for working 
their way out of their miserable surroundings. The existence 
of a considerable supply of labour ready to make match-boxes 
at a very low rate is normal in the same way that a contortion 



36 


I, m, 5. 


All 

scientific 

doctrines 

tacitly or 

implicitly 

assume 

certain 

conditions 

and are in 

this sense 

b^otheti- 


ECONOMIC GENERALIZATIONS OR LAWS 

of the limbs is a normal result of taking strychnine. It is 
one result, a deplorable result, of those tendencies the laws 
of which we have to study. This illustrates one peculiarity 
which economics shares with a few other sciences, the nature 
of the material of which can be modified by human effort. 
Science may suggest a moral or practical precept to modify 
that nature and thus modify the action of laws of nature. 
For instance, economics may suggest practical means of 
substituting capable workers for those who can only do 
such work as match-box making; as physiology may suggest 
measures for so modifying the breeds of cattle that they 
mature early, and carry much flesh on light frames. The 
laws of the fluctuation of credit and prices have been much 
altered by increased powers of prediction. 

Again when “ normal’’ prices are contrasted with tempo- 
rary or market prices, the term refers to the dominance in 
the long run of certain tendencies under given conditions. 
But this raises some difficult questions which may be 
postponed^. 

§ 5. It is sometimes said that the laws of economics are 
‘‘hypothetical.” Of course, like every other science, it under- 
takes to study the effects which will be produced by certain 
causes, not absolutely, but subject to the condition that 
other things are equal, and that the causes are able to work out 
their effects undisturbed. Almost every scientific doctrine, 
when carefully and formally stated, will be found to contain 
some proviso to the effect that other things are equal: the 
action of the causes in question is supposed to be isolated; 
certain effects are attributed to them, but only on the hyjpo- 
thesis that no cause is permitted to enter except those 
distinctly allowed for. It is true however that the condition 
that time must be allowed for causes to produce their effects 
is a source of great difficulty in economics. For meanwhile 
the material on which they work, and perhaps even the 
causes themselves, may have changed; and the tendencies 
which are being described will not have a sufficiently “long 
run” in which to work themselves out fully. This difficulty 
will occupy our attention later on. 

‘ They are discussed in Book V, especially chapterv HI wd V. 



THE IMPORTANCE OF CONDITIONING CLAUSES S7 

The conditioning clauses implied in a law are not con- i,ra,5. 

tinually repeated, but the common sense of the reader Butl^ 

supplies them for himself. In economics it is necessary to 

repeat them oftener than elsewhere, because its doctrines are conditions 

must b© 

more apt than those of any other science to be quoted by empha- 
persons who have had no scientific training, and who perhaps 
have heard them only at second hand, and without their 
context. One reason why ordinary conversation is simpler 
in form than a scientific treatise, is that in conversation we 
can safely omit conditioning clauses; because, if the hearer 
does not supply them for himself, we quickly detect the 
misunderstanding, and set it right. Adam Smith and many 
of the earlier writers on economics attained seeming sim- 
plicity by following the usages of conversation, and omitting 
conditioning clauses. But this has caused them to be 
constantly misunderstood, and has led to much waste of 
time and trouble in profitless controversy; they purchased 
apparent ease at too great a cost even for that gain^. 

Though economic analysis and general reasoning are of 
wide application, yet every age and every country has its own 
problems; and every change in social conditions is likely to 
require a new development of economic doctrines^. 

* Compare Book II, chapter I. 

* Some parts of economics are relatively abstract or purs, because they are 
concerned mainly with broad general propositions : for, in order that a proposition 
may be of broad application it must necessarily contain few details: it cannot 
adapt itself to particular cases; and if it points to any prediction, that must be 
governed by a strong conditioning clause in which a very large meaning is given 
to the phrase “other things being equal.” 

Other parts are relatively applied^ because they deal with narrower questions 
more in detail; they take more accoimt of local and temporary elements; and they 
consider economic conditions in fuller and closer relation to other conditions of 
Hfe. Thus there is but a short step from the applied science of banking in its more 
general sense, to broad rules or precepts of the general Art of banking : while the 
step from a particular local problem of the apphed science of banking to the 
corresponding rule of practice or precept of Art may be shorter still. 



CHAPTER IV. 

THE ORDER AND AIMS OF ECONOMIC STUDIES. 

I, IV, 1. §1. We have seen that the economist must be greedy 

Sum^ry of facts; but that facts by themselves teach nothing. 
II an^HL History tells of sequences and coincidences; but reason alone 
can interpret and draw lessons from them. The work to be 
done is so various that much of it must be left to be dealt 
with by trained common sense, which is the ultimate arbiter 
in every practical problem. Economic science is but the 
working of common sense aided by appliances of organized 
analysis and general reasoning, which facilitate the task of 
collecting, arranging, and drawing inferences from particular 
facts. Though its scope is always limited, though its work 
without the aid of common sei;ise is vain, yet it enables 
common sense to go further in difficult problems than would 
otherwise be possible. 

Economic laws are statements with regard to the ten- 
dencies of man’s action under certain conditions. They are 
hypothetical only in the same sense as are the laws of 
the physical sciences: for those laws also contain or imply 
conditions. But there is more difficulty in making the 
conditions clear, and more danger in any failure to do so, 
in economics than in physics. The laws of human action 
are not indeed as simple, as definite or as clearly ascertain- 
able as the law of gravitation; but many of them may rank 
with the laws of those natural sciences which deal with 
complex subject-matter. 

The raison d'etre of economics as a separate science is 
that it deals chiefly with that part of man’s action which is 
most under the control of measurable motives; and which 



A RETROSPECT 


39 


therefore lends itself better than any other to systematic 
reasoning and analysis. We cannot indeed measure motives 
of any kind, whether high or low, as they are in themselves: 
we can measure only their moving force. Money is never a 
perfect measure of that force; and it is not even a tolerably 
good measure unless careful account is taken of the general 
conditions under which it works, and especially of the riches 
or poverty of those whose action is under discussion. But 
with careful precautions money affords a fairly good measure 
cf the moving force of a great part of the motives by which 
men’s lives are fashioned. 

The study of theory must go hand in hand with that 
of facts: and for dealing with most modern problems it is 
modern facts that are of the greatest use. For the economic 
records of the distant past are in some respects slight and 
untrustworthy; and the economic conditions of early times 
are wholly unlike those of the modern age of free enterprise, 
of general education, of true democracy, of steam, of the 
cheap press and the telegraph. 

§ 2. Economics has then as its purpose firstly to acquire Scientific 
knowledge for its own sake, and secondly to throw light on 
practical issues. But though we are bound, before entering 
on any study, to consider carefully what are its uses, we 
should not plan out our work with direct reference to them, practical 
For by so doing we are tempted to break off each line of Tub- ^ 
thought as soon as it ceases to have an immediate bearing 
on that particular aim which we have in view at the time : 
the direct pursuit of practical aims leads us to group ^ 

together bits of all sorts of knowledge, which have no they are 
connection with one another except for the immediate 
purposes of the moment; and which throw but little light 
on one another. Our mental energy is spent in going from 
one to another; nothing is thoroughly thought out; no real 
progress is made. 

The best grouping, therefore, for the purposes of science 
is that which collects together all those facts and reasonings 
which are similar to one another in nature: so that the 
study of each may throw light on its neighbour. By 
working thus for a long time at one set of considerations, 



40 


THE ORDER AND AIMS OF ECONOMC STUDIES 


I, lY, 3. 


Questions 
investiga- 
ted by the 
economist. 


we get gradually nearer to those fundamental unities which 
are called nature’s laws: we trace their action first singly, 
and then in combination; and thus make progress slowly but 
surely. The practical uses of economic studies should never 
be out of the mind of the economist, but his special business 
is to study and interpret facts and to find out what are the 
effects of different causes acting singly and in combination. 

§ 3. This may be illustrated by enumerating some of the 
chief questions to which the economist addresses himself. 
He inquires : — 

What are the causes which, especially in the modern 
world, affect the consumption and production, the distribu- 
tion and exchange of wealth; the organization of industry 
and trade; the money market; wholesale and retail dealing; 
foreign trade, and the relations between employers and 
employed? How do all these movements act and react 
upon one another? How do their ultimate differ from their 
immediate tendencies? 

Subject to what limitations is the price of anything a 
measure of its desirability? What increase of wellbeing is 
jtrimd facie likely to result from a given increase in the 
wealth of any class of society? How far is the industrial 
efficiency of any class impaired by the insufficiency of its 
income? How far would an increase of the income of any 
class, if once effected, be likely to sustain itself through its 
effects in increasing their efficiency and earning power? 

How far does, as a matter of fact, the influence of 
economic freedom reach (or how far has it reached at any 
particular time) in any place, in any rank of society, or in 
any particular branch of industry? What other influences 
are most powerful there; and how is the action of all these 
influences combined? In particular, how far does economic 
freedom tend of its own action to build up combinations 
and monopolies, and what are their effects? How are the 
various classes of society likely to be affected by its action in 
the long run; what will be the intermediate effects while its 
ultimate results are being worked out; and, account being 
taken of the time over which they will spread, what is the 
relative importance of these two classes of ultimate and 



SCIBNTmC INQUIRIES AND PRACTICAL ISSUES 


41 


intermediate effects? What will be the incidence of any 
system of taxes? What burdens will it impose on the 
community, and what revenue will it afford to the State? 

§4. The above are the main questions with which Practical 
economic science has to deal directly, and with reference to 
which its main work of collecting facts, of analysing them 
and reasoning about them should be arranged. The practical 
issues which, though lying for the greater part outside the English 
range of economic science, yet supply a chief motive in the 
background to the work of the economist, vary from time 
to time, and from place to place, even more than do the 
economic facts and conditions which form the material of notue 
his studies. The following problems seem to be of special the 
urgency now in our own country:— SieL. 

How should we act so as to increase the good and 
diminish the evil influences of economic freedom, both in 
its ultimate results and in the course of its progress? If 
the first are good and the latter evil, but those who suffer 
the evil, do not reap the good; how far is it right that they 
should suffer for the benefit of others? 

Taking it for granted that a more equal distribution of 
wealth is to be desired, how far would this justify changes in 
the institutions of property, or limitations of free enterprise 
even when they would be likely to diminish the aggregate of 
wealth? In other words, how far should an increase in the 
income of the poorer classes and a diminution of their work 
be aimed at, even if it involved some lessening of national 
material wealth? How far could this be done without in- 
justice, and without slackening the energies of the leaders 
of progress? How ought the burdens of taxation to be 
distributed among the different classes of society? 

Ought we to rest content with the existing forms of 
division of labour? Is it necessary that large numbers of 
the people should be exclusively occupied with work that has 
no elevating character? Is it possible to educate gradually 
among the great mass of workers a new capacity for the 
higher kinds of work; and in particular for undertaking 
co-operatively the management of the business in which 
they are themselves employed? 



42 


I, IT, 4. 


The 

dominant 
aim of 
economics 
in the 
present 
generation 
IB to con- 
tribute to 
a solution 
of social 
problems. 


THE ORDER AND AIMS 07 SCONOMIO STUDIES 

What are the proper relations of individual and collective 
action in a stage of civilization such as ours? How far ought 
voluntary association in its various forms, old and new, to 
be left to supply collective action for those purposes for 
which such action has special advantages? What business 
affairs should be undertaken by society itself acting through 
its government, imperial or local? Have we, for instance, 
carried as far as we should the plan of collective ownership 
and use of open spaces, of works of art, of the means of 
instruction and amusement, as well as of those material 
requisites of a civilized life, the supply of which requires 
united action, such as gas and water, and railwaysr? 

When government does not itself directly intervene, how 
far should it allow individuals and corporations to conduct 
their own affairs as they please? How far should it regulate 
the management of railways and other concerns which are 
to some extent in a position of monopoly, and again of land 
and other things the quantity of which cannot be increased 
by man? Is it necessary to retain in their full force all the 
existing rights of property; or have the original necessities 
for which they were meant to provide, in some measure 
passed away? 

Are the prevailing methods of using wealth entirely 
justifiable? What scope is there for the moral pressure of 
social opinion in constraining and directing individual action 
in those economic relations in which the rigidity and violence 
of government interference would be likely to do more harm 
than good? In what respect do the duties of one nation to 
another in economic matters differ from those of members of 
the same nation to one another? 

Economics is thus taken to mean a study of the economic 
aspects and conditions of man’s political, social and private 
life; but more especially of his social life. The aims of the 
study are to gain knowledge for its own sake, and to obtain 
guidance in the practical conduct of life, and especially of 
social life. The need for such guidance was never so urgent 
as now; a later generation may have more abundant leisure 
than we for researches that throw light on obscure points in 



PRACJTIOAL ISSUES 


43 


abstract speculation, or in the history of past times, but do i, nr, 5. 
not afford immediate aid in present difficulties. 

But though thus largely directed by practical needs, 
economics avoids as far as possible the discussion of those 
exigencies of party organization, and those diplomacies of 
home and foreign politics of which the statesman is bound 
to take account in deciding what measures that he can 
propose will bring him nearest to the end that he desires to 
secure for his country. It aims indeed at helping him to 
determine not only what that end should be, but also what 
are the best methods of a broad policy devoted to that end. 

But it shuns many political issues, which the practical man 
cannot ignore : and it is therefore a science, pure and applied, 
rather than a science and an art. And it is better described 
by the broad term “Economics” than by the narrower 
term “Political Economy.” 

§ 5. The economist needs the three great intellectual The 
faculties, perception, imagination and reason: and most ofoTpercep- 
all he needs imagination, to put him on the track of those nation^d 
causes of visible events which are remote or lie below the ^ 

economics. 

surface, and of those effects of visible causes which are remote 
or lie below the surface. 

The natural sciences and especially the physical group 
of them have this great advantage as a discipline over all 
studies of man’s action, that in them the investigator is 
called on for exact conclusions which can be verified by 
subsequent observation or experiment. His fault is soon 
detected if he contents himself with such causes and such 
effects as lie on the surface; or again if he ignores the 
mutual interaction of the forces of nature, wherein every 
movement modifies and is modified by all that surround it. 

Nor does the thorough student of physics rest satisfied with 
a mere general analysis; he is ever striving to make it 
quantitative; and to assign its proper proportion to each 
element in his problem. 

In sciences that relate to man exactness is less attainable. An 
The path of least resistance is sometimes the only one open: standard of 
it is always alluring; and though it is also always treacherous, ment^ 
the temptation is great to follow it even when a more®^^<^y^® 



44 


THE ORDER AND AIMS OP ECONOMIC STUDIES 


I, IV, 6. 

judgment 
18 in some 
measure 
attainable 
by the 
economist. 


But his 
main 
reliance 
must be on 
disciplined 
imagina- 
tion; 


thorough way can be fought out by resolute work. The 
scientific student of history is hampered by his inability to 
experiment and even more by the absence of any objective 
standard to which his estimates of relative proportion can be 
referred. Such estimates are latent in almost every stage of 
his argument: he cannot conclude that one cause or group 
of causes has been overridden by another without making 
some implicit estimate of their relative weights. And yet it 
is only by a great effort that he perceives how dependent he 
is on his own subjective impressions. The economist also is 
hampered by this difficulty, but in a less degree than other 
students of man’s action; for indeed he has some share in 
those advantages which give precision and objectivity to the 
work of the physicist. So long, at all events, as he is 
concerned with current and recent events, many of his facts 
group themselves under classes as to which statements can 
be made that are definite, and often were approximately 
accurate numerically: and thus he is at some advantage in 
seeking for causes and for results which lie below the surface, 
and are not easily seen; and in analyzing complex conditions 
into their elements and in reconstructing a whole out of 
many elements. 

In smaller matters, indeed, simple experience will suggest 
the unseen. It will, for instance, put people in the way of 
looking for the harm to strength of character and to family 
life that comes from ill-considered aid to the thriftless; even 
though what is seen on the surface is almost sheer gain. 
But greater effort, a larger range of view, a more powerful 
exercise of the imagination are needed in tracking the true 
results of, for instance, many plausible schemes for increasing 
steadiness of employment. For that purpose it is necessary 
to have learnt how closely connected are changes in credit, 
in domestic trade, in foreign trade competition, in harvests, 
in prices; and how all of these affect steadiness of employ- 
ment for good and for evil. It is necessary to watch how 
almost every considerable economic event in any part of the 
Western world affects employment in some trades at least in 
almost every other part. If we deal only with those causes 
of unemployment which are near at hand, we are likely to 



THE NEED FOR PERCEPTION. IMAQINATION AND REASON 


46 


make no good cure of the evils we see; and we are likely i, ly, 5. 
to cause evils, that we do not see. And if we are to 
look for those which are far off and weigh them in the 
balance, then the work before us is a high discipline for 
the mind. 

Again, when by a “standard rule’’ or any other device 
wages are kept specially high in any trade, imagination set 
agoing will try to track the lives of those who are prevented 
by the standard rule from doing work, of which they are 
capable, at a price that people are willing to pay for it. Are 
they pushed up, or are they pushed down? If some are 
pushed up and some pushed down, as commonly happens, is 
it the many that are pushed up and the few that are pushed 
down, or the other way about? If we look at surface results, 
we may suppose that it is the many who are pushed up. 

But if, by the scientific use of the imagination, we think out 
all the ways in which prohibitions, whether on Trade Union 
authority or any other, prevent people from doing their best 
and earning their best, we shall often conclude that it is the 
many who have been pushed down, and the few who have 
been pushed up. Partly under English influence, some 
Australasian colonies are making bold ventures, which hold 
out specious promise of greater immediate comfort and ease 
to the workers. Australasia has indeed a great reserve of 
borrowing power in her vast landed property: and should the 
proposed short cuts issue in some industrial decadence, the 
fall may be slight and temporary. But it is already being 
urged that England should move on similar lines: and a fall 
for her would be more serious. What is needed, and what 
we may hope is coming in the near future, is a larger study 
of such schemes of the same kind and by the same order of 
minds as are applied to judging a new design for a battleship 
with reference to her stability in bad weather. 

In such problems as this it is the purely intellectual, and and he 
sometimes even the critical faculties, which are most in active 
demand. But economic studies call for and develop the®^^®^^* 
faculty of sympathy, and especially that rare sympathy which 
enables people to put themselves in the place, not only of 
their comrades, but also of other classes. This class sympathy 



46 


I, rr, 6. 


Caution ia 
demanded 
by an 
increasing 
recognition 
of the 
limitation 
of our 
knowledge 
and the 
uncertain 
perman- 
ence of oui 
present 
social 
ideals. 


THE ORDER AND AIMS OF SCONOMIO STUDIES 

is, for instance, strongly developed by inquiries, which are 
becoming every day more urgent, of the reciprocal influences 
which character and earnings, methods of employment and 
habits of expenditure exert on one another; of the ways 
in which the efficiency of a nation is strengthened by and 
strengthens the confidences and affections which hold together 
the members of each economic group — the family, employers 
and employees in the same business, citizens of the same 
country; of the good and evil that are mingled in the 
individual unselfishness and the class selfishness of pro- 
fessional etiquette and of trade union customs; and of move- 
ments by which our growing wealth and opportunities may 
best be turned to account for the wellbeing of the present 
and coming generations^. 

§ 6. The economist needs imagination especially in 
order that he may develop his ideals. But most of all he 
needs caution and reserve in order that his advocacy of 
ideals may not outrun his grasp of the future. 

After many more generations have passed, our present 
ideals and methods may seem to belong to the infancy, 
rather than to the maturity of man. One definite advance has 
already been made. We have learnt that every one until 
proved to be hopelessly weak or base is worthy of full 
economic freedom: but we are not in a position to guess 
confidently to what goal the advance thus begun will 
ultimately lead. In the later Middle Ages a rough begin- 
ning was made of the study of the industrial organism, 
regarded as embracing all humanity. Each successive 
generation has seen further growths of that organism; but 
none has seen so large a growth as our own. The eagerness 
with which it has been studied has grown with its growth ; and 
no parallel can be found in earlier times to the breadth and 
variety of the efforts that have been made to comprehend 

it. But the chief outcome of recent studies is to make us 
recognize more fully, than could be done by any previous 
generation, how little we know of the causes by which 

^ This Section is reproduced from a Plea for the creation of a currievlvm in 
economics and associated branches of political science addressed to the UniFersity 
of Cambridge in 1902, and conceded in the following year. 



THE NEED FOR SYMPATHY 47 

progress is being fashioned, and how little we can forecast 
the ultimate destiny of the industrial organism. 

Some harsh employers and politicians, defending exclusive Popular 
class privileges early in last century, found it convenient to of tL 
claim the authority of political economy on their side; 
they often spoke of themselves as “economists/' And even in ioundersof 

modem 

our own time, that title has been assumed by opponents of economics, 
generous expenditure on the education of the masses of the 
people, in spite of the fact that living economists with one 
consent maintain that such expenditure is a true economy, 
and that to refuse it is both wrong and bad business 
from a national point of view. But Carlyle and Buskin, 
followed by many other writers who had no part in their 
brilliant and ennobling poetical visions, have without 
examination held the great economists responsible for say- 
ings and deeds to which they were really averse; and in 
consequence there has grown up a popular misconception of 
their thoughts and character. 

The fact is that nearly all the founders of modem 
economics were men of gentle and sympathetic temper, 
touched with the enthusiasm of humanity. They cared little 
for wealth for themselves; they cared much for its wide 
diffusion among the masses of the people. They opposed 
antisocial monopolies however powerful. In their several 
generations they supported the movement against the class 
legislation which denied to trade unions privileges that were 
open to associations of employers; or they worked for a 
remedy against the poison , which the old Poor Law was 
instilling irito the hearts and homes of the agricultural 
and other labourers; or they supported the factory acts, 
in spite of the strenuous opposition of some politicians 
and employers who claimed to speak in their name. They 
were without exception devoted to the doctrine that the 
wellbeing of the whole people should be the ultimate goal 
of all private effort and all public policy. But they were 
strong in courage and caution; they appeared cold, because 
they would not assume the responsibility of advocating rapid 
advances on untried paths, for the safety of which the only 
guarantees offered were the confident hopes of men whose 



48 


I, IV, 6. 


Biolo^ 
has given 
new hopes 
as to the 
future of 
the human 
race. 


But it is 
still true 
that short 
cuts are 
dangerous: 
progress 
must be 
cautious 
and 

tentative. 


THE ORDER AND AIMS OF ECONOMIC STUDIES 

imaginations were eager, but not steadied by knowledge nor 
disciplined by hard thought. 

Their caution was perhaps a little greater than necessary : 
for the range of vision even of the great seers of that age 
was in some respects narrower than is that of most educated 
men in the present time; when, partly through the sugges- 
tions of biological study, the influence of circumstances in 
fashioning character is generally recognized as the dominant 
fact in social science. Economists have accordingly now 
learnt to take a larger and more hopeful view of the 
possibilities of human progress. They have learnt to trust 
that the human will, guided by careful thought, can so 
modify circumstances as largely to modify character; and 
thus to bring about new conditions of life still more favourable 
to character; and therefore to the economic, as well as the 
moral, wellbeing of the masses of the people. Now as ever it 
is their duty to oppose all plausible short cuts to that great 
end, which would sap the springs of energy and initiative. 

The rights of property, as such, have not been venerated 
by those master minds who have built up economic science; 
but the authority of the science has been wrongly assumed 
by some who have pushed the claims of vested rights to 
extreme and antisocial uses. It may be well therefore to 
note that the tendency of careful economic study is to 
base the rights of private property not on any abstract 
principle, but on the observation that in the past they have 
been inseparable from solid progress; and that therefore it 
is the part of responsible men to proceed cautiously and 
tentatively in abrogating or modifying even such rights as 
may seem to be inappropriate to the ideal conditions of 
social life. 



BOOK II. 

SOME FUNDAMENTAL NOTIONS. 


CHAPTER 1. 

INTRODUCTORY. 

§1. We have seen that economics is, on the one side, ii, i, i. 
a Science of Wealth; and, on the other, that part of the Eco^rv^ics 
Social Science of man’s action in society, which deals with ^faith^as 
his Efforts to satisfy his Wants, in so far as the efforts and satisfying 

1 1 1 • -I • I. 11 Wants and 

wants are capable of being measured in terms of wealth, or as the 
its general representative, i.e. money. We shall be occupied Efforts, 
during the greater part of this volume with these wants and 
efforts ; and with the causes by which the prices that measure 
the wants are brought into equilibrium with those that 
measure the efforts. For this purpose we shall have to study 
in Book III. wealth in relation to the diversity of man’s wants, 
which it has to satisfy ; and in Book IV. wealth in relation 
to the diversity of man’s efforts by which it is produced. 

But in the present Book, we have to inquire which of But it 
all the things that are the result of man’s efforts, and are make a 
capable of satisfying man’s wants, are to be counted 
Wealth; and into what groups or classes these are to 
divided. For there is a compact group of terms connected 
with Wealth itself, and with Capital, the study of each of 
which throws light on the others; while the study of the 
whole together is a direct continuation, and in some respects 
a completion, of that inquiry as to the scope and methods 
of economics on which we have just been engaged. And, 
therefore, instead of taking what may seem the more natural 



60 


INTRODUCTORT 


II, I, 2. 


Principles 
of classifi- 
cation. 


The diffi- 
culties of 
classifying 
things 
whicn are 
changing 
their 

characters 
and their 
uses. 


course of starting with an analysis of wants, and of wealth in 
direct relation to them, it seems on the whole best to deal 
with this group of terms at once. 

In doing this we shall of course have to take some 
account of the variety of wants and efforts; but we shall not 
want to assume anything that is not obvious and a matter of 
common knowledge. The real difficulty of our task lies in 
another direction; being the result of the need under which 
economics, alone among sciences, lies of making shift with a 
few terms in common use to express a great number of 
subtle distinctions. 

§ 2. As Mill says^: — “The ends of scientific classification 
are best answered when the objects are formed into groups 
respecting which a greater number of general propositions 
can be made, and those propositions more important, than 
those which could be made respecting any other groups into 
which the same things could be distributed.*’ But we meet 
at starting with the difficulty that those propositions which 
are the most important in one stage of economic develop- 
ment, are not unlikely to be among the least important in 
another, if indeed they apply at all. 

In this matter economists have much to learn from the 
recent experiences of biology: and Darwin’s profound discus- 
sion of the question^ throws a strong light on the difficulties 
before us. He points out that those parts of the structure 
which determine the habits of life and the general place of 
each being in the economy of nature, are as a rule not those 
which throw most light on its origin, but those which throw 
least. The qualities which a breeder or a gardener notices 
as eminently, adapted to enable an animal or a plant to 
thrive in its environment, are for that very reason likely to 
have been developed in comparatively recent times. And in 
like manner those properties of an economic institution 
which play the most important part in fitting it for the 
work which it has to do now, are for that very reason likely 
to be in a great measure of recent growth. 

Instances are found in many of the relations between 

* Logie^ Bk. rr. ch. vn. Par. 2. 

• Origin of Spoeitt^ ch. xir. 



DIFFICULTIES OF ECONOMIC TERMINOLOGY 61 

employer and employed, between middleman and producer, ii, i, 8, 
between bankers and their two classes of clients, those from 
whom they borrow and those to whom they lend. The 
substitution of the term ‘‘interest’’ for “usury” corresponds 
to a general change in the character of loans, which has 
given an entirely new key-note to our analysis and classifica- 
tion of the different elements into which the cost of production 
of a commodity may be resolved. Again, the general scheme 
of division of labour into skilled and unskilled is undergoing 
a gradual change; the scope of the term “rent” is being 
broadened in some directions and narrowed in others; and 
so on. 

But on the other hand we must keep constantly in mind 
the history of the terms which we use. For, to begin with, 
this history is important for its own sake; and because it 
throws side lights on the history of the economic develop- 
ment of society. And further, even if the sole purpose of our 
study of economics were to obtain knowledge that would 
guide us in the attainment of immediate practical ends, we 
should yet be bound to keep our use of terms as much as 
possible in harmony with the traditions of the past; in order 
that we might be quick to perceive the indirect hints and 
the subtle and subdued warnings, which the experiences of 
our ancestors offer for our instruction. 

§ 3. Our task is difficult. In physical sciences indeed, in iu use 
whenever it is seen that a group of things have a certain set economics 
of qualities in common, and will often be spoken of together, as 
they are formed into a class with a special name ; and as soon 
as a new notion emerges, a new technical term is invented the practice 
to represent it. But economics cannot venture to follow this day lifi 
example. Its reasonings must be expressed in language 
that is intelligible to the general public; it must therefore 
endeavour to conform itself to the familiar terms of every- 
day life, and so far as possible must use them as they are 
commonly used. 

In common use almost every word has many shades of But that is 
meaning, and therefore needs to be interpreted by the con- 
text. And, as Bagehot has pointed out, even the most 
formal writers on economic science are compelled to follow 



62 


INTRODUCTORY 


II, 1, 8. this course; for otherwise they would not have enough words 
at their disposal. But unfortunately they do not always 
avow that they are taking this freedom; sometimes perhaps 
they are scarcely even aware of the fact themselves. The 
bold and rigid definitions, with which their expositions of 
the science begin, lull the reader into a false security. Not 
being warned that he must often look to the context for a 
special interpretation clause, he ascribes to what he reads 
a meaning different from that which the writers had in 
their own minds; and perhaps misrepresents them and 
accuses them of folly of which they had not been guilty^, 
definite. Again, most of the chief distinctions marked by economic 
terms are differences not of kind but of degree. At first 
sight they appear to be differences of kind, and to have 
sharp outlines which can be clearly marked out; but a more 
careful study has shown that there is no real breach of 
continuity. It is a remarkable fact that the progress of 
economics has discovered hardly any new real differences in 
kind, while it is continually resolving apparent differences in 
kind into differences in degree. We shall meet with many 
instances of the evil that may be done by attempting to 
draw broad, hard and fast lines of division, and to formulate 
definite propositions with regard to differences between things 
which nature has not separated by any such lines, 

^ We ought **to write more as we do in common life, where the context is a 
sort of unexpressed * interpretation clause'; only as in Political Economy we have 
more difficult things to speak of than in ordinary conversation, we must take 
more care, give more warning of any change; and at times write out *the inter- 
pretation clause* for that page or discussion lest there should be any mistake. 
I know that this is difficult and delicate work; and aU that I have to say in 
defence of it is that in practice it is safer than the competing plan of inflexible 
definitions. Any one who tries to express various meanings on complex things 
with a scanty vocabulary of fastened senses, will find that his style grows cum- 
brous without being accurate, that he has to use long periphrases for common 
thoughts, and that after all he does not come out right, for he is half the time 
falling back into the senses which fit the case in hand best, and these are some- 
times one, sometimes another, and almost always different from his 'hard and 
fast* sense. In such discussions we should learn to vary our definitions as we 
want, just as we say 'let x, y, c, mean* now this, and now that, in different prob- 
lems; and thii, though they do not always avow it, is really the practice of the 
clearest and most effective writers.” (Bagehot’s Postulates of English Political 
Eeonomyt pp. 78, 9.) Caimes also {Logical Method of Political Economy^ Lect. vi.) 
combats " the assumption that the attribute on which a definition turns ought to 
be one which does not admit of degrees**; and argues that "to admit of degrees is 
the character of all natural facts.** 



DIFFICULTIES OF ECONOMIC TERMINOLOGY 


53 


§ 4. We must then analyze carefully the real character- ii, i, 4 . 
istics of the various things with which we have to deal; and itiJ^es- 
we shall thus generally find that there is some use of each ® 
term which has distinctly greater claims than any other 
be called its leading use, on the ground that it represents a defined, 
distinction that is more important for the purposes of modem that the 
science than any other that is in harmony with ordinary 
usage. This may be laid down as the meaning to be given ^ 

to the term whenever nothing to the contrary is stated or 
implied by the context. When the term is wanted to be 
used in any other sense, whether broader or narrower, the 
change must be indicated. 

Even among the most careful thinkers there will always 
remain differences of opinion as to the exact places in which 
some at least of the lines of definition should be drawn. The 
questions at issue must in general be solved by judgments as 
to the practical convenience of different courses; and such 
judgments cannot always be established or overthrown by 
scientific reasoning: there must remain a margin of debatable 
ground. But there is no such margin in the analysis itself: 
if two people differ with regard to that, they cannot both be 
right. And the progress of the science may be expected 
gradually to establish this analysis on an impregnable basis^. 

^ When it is wanted to narrow the meaning of a term (that is, in logical lan- 
guage, to diminish its extension by increasing its intension), a qualifying adjective 
will generally suffice, but a change in the opposite direction cannot ^ a rule be 
so simply made. Contests as to definitions are often of this kind; — A and B are 
qualities common to a great number of things, many of these things have in 
addition the quality C, and again many the quality JD, whilst some have both C 
and D. It may then be argued that on the whole it will be best to define a term 
so as to include all things which have the qualities A and J?, or only those 
which have the qualities A, B^C^ or only those which have the qualities A^ B, D\ 
or only those which have B^ C, D, The decision between these various 
courses must rest on considerations of practical convenience, and is a matter 
of far less importance than a careful study of the qualities A, F, C, D, and of 
their mutual relations. But unfortunately this study has occupied a much smaller 
space in English economics than controversies as to definitions; which have 
indeed occasionally led indirectly to the discovery of scientific truth, but always 
by roundabout routes, and with much waste of time and labour. 



CHAPTER IL 


II, n, 1. 

Wealth 
consists of 
desirable 
things or 
Goods. 


Material 

goods. 


External 

and 

internal 

goods. 


WEALTH. 

§1. All wealth consists of desirable things; that is, 
things which satisfy human wants directly or indirectly : but 
not all desirable things are reckoned as wealth. The affec- 
tion of friends, for instance, is an important element of 
wellbeing, but it is not reckoned as wealth, except by a 
poetic licence. Let us then begin by classifying desirable 
things, and then consider which of them should be accounted 
as elements of wealth. 

In the absence of any short term in common use to 
represent all desirable things, or things that satisfy human 
wants, we may use the term Goods for that purpose. 

Desirable things or goods are Material, or Personal and 
Immaterial. Material goods consist of useful material 
things, and of all rights to hold, or use, or derive benefits 
from material things, or to receive them at a future time. 
Thus they include the physical gifts of nature, land and 
water, air and climate; the products of agriculture, mining, 
fishing, and manufacture; buildings, machinery, and imple- 
ments; mortgages and other bonds; shares in public and 
private companies, all kinds of monopolies, patent-rights, 
copyrights; also rights of way and other rights of usage. 
Lastly, opportunities of travel, access to good scenery, 
museums, etc. are the embodiment of material facilities, 
external to a man; though the faculty of appreciating them 
is internal and personal. 

A man’s non-material goods fall into two classes. One 
consists of his own qualities and faculties for action and for 
enjoyment; such for instance as business ability, professional 
skill, or the faculty of deriving recreation from reading or 



CLASSES OP DESIRABLE THINGS 


66 


music. All these lie within himself and are called internal, i. 
The second class are called external because they consist of 
relations beneficial to him with other people. Such, for 
instance, were the labour dues and personal services of 
various kinds which the ruling classes used to require from 
their serfs and other dependents. But these have passed 
away; and the chief instances of such relations beneficial to 
their owner now-a-days are to be found in the good will and 
business connection of traders and professional men^. 

Again, goods may be transferable or non-transferable. Transfer- 
Among the latter are to be classed a person’s qualities and ^n-trans- 
faculties for action and enjoyment {i.e, his internal goods) ; 
also such part of his business connection as depends on 
personal trust in him and cannot be transferred, as part 
of his vendible good will; also the advantages of climate, 
light, air, and his privileges of citizenship and rights and 
opportunities of making use of public property^ 

Those goods are free, which are not appropriated and Free goods, 
are afforded by Nature without requiring the effort of man. 

The land in its original state was a free gift of nature. But 
in settled countries it is not a free good from the point of 
view of the individual. Wood is still free in some Brazilian 
forests. The fish of the sea are free generally: but some 
sea fisheries are jealously guarded for the exclusive use of 
members of a certain nation, and may be classed as national 


^ For, in the words in which Hermann begins his masterly analysis of wealth, 
“Some Goods are internal^ others external^ to the individual. An internal good is 
that which he finds in himself given to him by nature, or which he educates in 
himself by his own free action, such as muscular strength, health, mental attain- 
ments. Everything that the outer wold offers for the satisfaction of his wants is an 
external good to him.” 

• The above classification of goods may be expressed thus: — 


Goods are ■< 


external 


material 
I , 


r transferable 
1 non-transferable 
I transferable 


y intemal-personal-non-transferable. 
Another arrangement is more convenient for some purposes 


Goods are 


^ material-external 


{ transferable 
non-transferable 


persona] 


, , I brauBierauie 

external < . t 

( non-transferable 

intemal-non-transferable. 



56 


II. n, 2. 


A person’s 
toeaUh 


is his stock 
o( two 
classes of 
goods, 

material 

goods, 


and such 

immaterial 

external 


WEALTH 

property. Oyster beds that have been planted by man are 
not free in any sense; those that have grown naturally are 
free in every sense if they are not appropriated; if they are 
private property they are still free gifts from the point of 
view of the nation. But, since the nation has allowed its 
rights in them to become vested in private persons, they are 
not free from the point of view of the individual; and the 
same is true of private rights of fishing in rivers. But wheat 
grown on free land and the fish that have been landed from 
free fisheries are not free: for they have been acquired by 
labour. 

§ 2. We may now pass to the question which classes of a 
man’s goods are to be reckoned as part of his wealth. The 
question is one as to which there is some difference of opinion, 
but the balance of argument as well as of authority seems 
clearly to incline in favour of the following answer: — 

When a man’s wealth is spoken of simply, and without 
any interpretation clause in the context, it is to be taken to 
be his stock of two classes of goods. 

In the first class are those material goods to which he 
has (by law or custom) private rights of property, and 
which are therefore transferable and exchangeable. These 
it will be remembered include not only such things as land 
and houses, furniture and machinery, and other material 
things which may be in his single private ownership, but also 
any shares in public companies, debenture bonds, mortgages 
and other obligations which he may hold requiring others to 
pay money or goods to him. On the other hand, the debts 
which he owes to others may be regarded as negative wealth; 
and they must be subtracted from his gross possessions before 
his true net wealth can be found. 

Services and other goods, which pass out of existence in 
the same instant that they come into it, are, of course, not 
part of the stock of wealth^. 

In the second class are those immaterial goods which 
belong to him, are external to him, and serve directly as 

That part of the value of the share in a trading company which is due to the 
personal reputation and connection of those who conduct its affairs ought properly 
to come under the next head as external personal goods. But this point is not of 
much practical importance. 



THE POINT OF VIEW OF THE INDIVIDUAL 


67 


the means of enabling him to acquire material goods. Thus ii, n, 3. 
it excludes all his own personal qualities and faculties, even goods as 
those which enable him to earn his living; because they are 
Internal. And it excludes his personal friendships, in so far 
as they have no direct business value. But it includes his 
business and professional connections, the organization of 
his business, and — where such things exist — his property in 
slaves, in labour dues, etc. 

This use of the term Wealth is in harmony with the The two 
usage of ordinary life : and, at the same time, it includes together 
those goods, and only those, which come clearly within the ^gcon^^ 
scope of economic science, as defined in Book I. ; and which 9 oods. 
may therefore be called economic goods. For it includes all 
those things, external to a man, which (i) belong to him, 
and do not belong equally to his neighbours, and therefore 
are distinctly his; and which (ii) are directly capable of a 
money measure, — a measure that represents on the one side 
the efforts and sacrifices by which they have been called into 
existence, and, on the other, the wants which they satisfy^. 

§ 3. A broader view of wealth may indeed be taken for A broader 
some purposes ; but then recourse must be had to a special in- the term 
terpretation clause, to prevent confusion. Thus, for instance, Sometimes 
the carpenter’s skill is as direct a means of enabling him to required, 
satisfy other people’s material wants, and therefore indirectly 
his own, as are the tools in his work-basket; and perhaps 
it may be convenient to have a term which will include 
it as part of wealth in a broader use. Pursuing the lines 
indicated by Adam Smith^., and followed by most continental 


‘ Ifc ia not implied that the owner of transferable goods, if he transferred 
them, could always realize the whole money value, which they have for him. 
A well-fitting coat, for instance, may be worth the price charged for it by an 
expensive tailor to its owner, because he wants it and cannot get it made for less : 
but he could not sell it for half that sum. The successful financier who has spent 
£50,000 on having a house and grounds made to suit his own special fancy, is 
from one point of view right in reckoning them in the inventory of his property at 
their cost price : but, should he fail, they will not form an asset to his creditors of 
anything like that value. 

And in the same way from one point of view we may count the business con- 
nection of the solicitor or physician, the merchant or the manufacturer, at the full 
equivalent of the income he would lose if he were deprived of it; while yet we 
must recognize that its exchange value, i.e, the value which he could get for it by 
selling it, is much less than that. 

• Comp. WeaUh of NoHonSy Bk. n. ch. n. 



68 


WEALTH 


n, n, 4. 

Pertonal 

wealth. 


A broad 
term to 
include all 
forms of 
private 
wealth. 


But we 
still have 
to take 
account 
of the in- 
dividual's 
share 
of the 
common 
wealth. 


economists, we may define personal wealth so as to include 
all those energies, faculties, and habits which directly con- 
tribute to making people industrially efficient; together with 
those business connections and associations of any kind, which 
we have already reckoned as part of wealth in the narrower 
use of the term. Industrial faculties have a further claim 
to be regarded as economic in the fact that their value is as 
a rule capable of some sort of indirect measurement^. 

The question whether it is ever worth while to speak of 
them as wealth is merely one of convenience, though it has 
been much discussed as if it were one of principle. 

Confusion would certainly be caused by using the term 
‘‘wealth” by itself when we desire to include a person’s 
industrial qualities. “Wealth” simply should always mean 
external wealth only. But little harm, and some good seems 
likely to arise from the occasional use of the phrase “material 
and personal wealth.” 

§ 4. But we still have to take account of those material 
goods which are common to him with his neighbours; and 
which therefore it would be a needless trouble to mention 
when comparing his wealth with theirs; though they may be 
important for some purposes, and especially for comparisons 
between the economic conditions of distant places or distant 
times. 

These goods consist of the benefits which he derives 
from living in a certain place at a certain time, and being a 
member of a certain state or community; they include civil 
and military security, and the right and opportunity to make 
use of public property and institutions of all kinds, such 
as roads, gaslight, etc., and rights to justice or to a free 
education. The townsman and the countryman have each of 
them for nothing, many advantages which the other either 
cannot get at all, or can get only at great expense. Other 
things being equal, one person has more real wealth in its 
broadest sense than another, if the place in which the former 
lives has a better climate, better roads, better water, more 

^ **Tbe bodies of men are without doubt the most valuable treasure of a 
coimtry/’ said Davenant in the seventeenth century; and similar phrases have been 
common whenever the trend of political development has made men anxious that 
the population should increase fast. 



THE SOCIAL POINT OP VIEW 


69 


wholesome drainage; and again better newspapers^ books, ii, n,5. 
and places of amusement and instruction. House-room, 
food and clothing, which would be insufficient in a cold 
climate, may be abundant in a warm climate: on the other 
hand, that warmth which lessens men’s physical needs, and 
makes them rich with but a slight provision of material 
wealth, makes them poor in the energy that procures 
wealth. 

Many of these things are collective goods ; t.e. goods Collective 
which are not in private ownership. And this brings us to 
consider wealth from the social, as opposed to the individual 
point of view. 

§ 5. Let us then look at those elements of the wealth of in a broad 
a nation which are commonly ignored when estimating the naUonai 
wealth of the individuals composing it. The most obvious 
forms of such wealth are public material property of all kinds, 
such as roads and canals, buildings and parks, gasworks and 
waterworks; though unfortunately many of them have been 
secured not by public savings, but by public borrowings, and 
there is the heavy ‘‘negative” wealth of a large debt to be 
set against them. 

But the Thames has added more to the wealth of England account 
than all its canals, and perhaps even than all its railroads. tSiken^o* 
And though the Thames is a free gift of nature (except in so 
far as its navigation has been improved), while the canal is 
the work of man, yet we ought for many purposes to reckon 
the Thames a part of England’s wealth. 

German economists often lay stress on the non-material the organi- 
elements of national wealth; and it is right to do this in society or 
some problems relating to national wealth, but not in all. 
Scientific knowledge indeed, wherever discovered, soon be- 
comes the property of the whole civilized world, and may be 
considered as cosmopolitan rather than as specially national 
wealth. The same is true of mechanical inventions and of 
many other improvements in the arts of production; and it 
is true of music. But those kinds of literature which lose 
their force by translation, may be regarded as in a special 
sense the wealth of those nations in whose language they are 
written. And the organization of a free and well-ordered 



60 


WEALTH 


II, n,5. 


Debts 
from one 
member of 
a nation to 
another 
ma^ be 
omitted. 


State is to be regarded for some purposes as an important 
element of national wealth. 

But national wealth includes the individual as well as 
the collective property of its members. And in estimating 
the aggregate sum of their individual wealth, we may save 
some trouble by omitting all debts and other obligations due 
to one member of a nation from another. For instance, so 
far as the English national debt and the bonds of an English 
railway are owned within the nation, we can adopt the 
simple plan of counting the railway itself as part of the 
national wealth, and neglecting railway and government 
bonds altogether. But we still have to deduct for those 
bonds etc. issued by the English Government or by private 
Englishmen, and held by foreigners; and to add for those 
foreign bonds etc. held by Englishmen^. 

‘ The value of a business may be to some extent due to its having a monopoly, 
either a complete monopoly, secured perhaps by a patent; or a partial monopoly, 
owing to its wares being better known than others which are really equally good; 
and in so far as this is the case the business does not add to the real wealth of 
the nation. If the monopoly were broken down, the diminution of national wealth 
due to the disappearance of its value would generally be more than made up, 
partly by the increased value of rival businesses, and partly by the increased 
purchasing power of the money representing the wealth of other members of the 
community. (It should, however, be added that in some exceptional cases, the 
price of a commodity may be lowered in consequence of its production being 
monopolized: but such cases are very rare, and may be neglected for the 
present.) 

Again, business connections and trade reputations add to the national wealth, 
only in so far as they bring purchasers into relation with those producers who 
will meet their real wants most fully for a given price; or in other words, only 
in so far as they increase the extent to which the efforts of the community as a 
whole meet the wants of the community as a whole. Nevertheless when we are 
estimating national wealth, not directly but indirectly as the aggregate of indi< 
vidual wealth, we must allow for these businesses at their full value, even though 
this partly consists of a monopoly which is not used for the public benefit. For 
the injury they do to rival producers was allowed for in counting up the values 
of the businesses of those rivals; and the injury done to consumers by raising the 
price of the produce, which they buy, was allowed for in reckoning the purchasing 
power of their means, so far as this particular commodity is concerned. 

A special case of this is the organization of credit. It increases the efficiency 
of production in the country, and thus adds to national wealth. And the power 
of obtaining credit *is a valuable asset to any individual trader. If, however, any 
accident should drive him out of business, the injury to national wealth is some- 
thing less than the whole value of that asset; because some part at least of the 
business, which he would have done, will now be done by others with the aid of 
some part at least of the capital which he would have borrowed. 

There are similar difficulties as to how far money is to be reckoned as part of 
national wealth; but to treat them thoroughly would require us to anticipate a 
good deal of the theory of money. 



THE SOCIAL POINT OF VIEW 


61 


Cosmopolitan wealth differs from national wealth much as ii, n, e. 
that differs from individual wealth. In reckoning it, debts cosm^ 
due from members of one nation to those of another may 
conveniently be omitted from both sides of the account. 

Again, just as rivers are important elements of national 
wealth, the ocean is one of the most valuable properties of 
the world. The notion of cosmopolitan wealth is indeed 
nothing more than that of national wealth extended over the 
whole area of the globe. 

Individual and national rights to wealth rest on the The 

iuridic&l 

basis of civil and international law, or at least of custom that basis of 
has the force of law. An exhaustive investigation of the 
economic conditions of any time and place requires therefore 
an inquiry into law and custom ; and economics owes much to 
those who have worked in this direction. But its boundaries 
are already wide; and the historical and juridical bases of 
the conceptions of property are vast subjects which may best 
be discussed in separate treatises. 

§ 6. The notion of Value is intimately connected with Value. 
that of Wealth; and a little may be said about it here, taken pro- 
“The word value'' says Adam Smith “has two different 
meanings, and sometimes expresses the utility of Bome®®“^^^j 
particular object and sometimes the power of purchasing purchasing 
other goods which the possession of that object conveys.’’ 

But experience has shown that it is not well to use the word 
in the former sense. 

The value, that is the exchange value, of one thing in 
terms of another at any place and time, is the amount of that 
second thing which can be got there and then in exchange 
for the first. Thus the term value is relative, and expresses 
the relation between two things at a particular place and 
time. 

Civilized countries generally adopt gold or silver or both 
as money. Instead of expressing the values of lead and tin, 
and wood, and corn and other things in terms of one another, 
we express them in terms of money in the first instance; and 
call the value of each thing thus expressed its price. If we 
know that a ton of lead will exchange for fifteen sovereigns 
at any place and time, while a ton of tin will exchange for 



WEALTH 


II, n, 6. ninety sovereigns, we say that their prices then and there are 
£16 and £90 respectively, and we know that the value of a 
ton of tin in terms of lead is six tons then and there. 

The price of every thing rises and falls from time to 
time and place to place; and with every such change the 
purchasing power of money changes so far as that thing goes. 
If the purchasing power of money rises with regard to some 
things, and at the same time falls equally with regard to 
equally important things, its general purchasing power (or 
its power of purchasing things in general) has remained 
stationary. This phrase conceals some difficulties, which we 
must study later on. But meanwhile we may take it in its 
popular sense, which is sufficiently clear; and we may 
throughout this volume neglect possible changes in the general 
purchasing power of money. Thus the price of anything will 
be taken as representative of its exchange value relatively to 
things in general, or in other words as representative of its 
general purchasing power^. 

But if inventions have increased man’s power over nature 
very much, then the real value of money is better measured 
for some purposes in labour than in commodities. This 
difficulty however will not much affect our work in the 
present volume, which is only a study of the Foundations” 
of economics. 

* As Cournot points out {Principes Mathhnatiques de la TJdorie des Richesses^ 
cb. II. )f we get the same sort of convenience from assuming the existence of a 
standard of uniform purchasing power by which to measure value, that astronomers 
do by assuming that there is a “mean sun*' which crosses the meridian at 
uniform intervals, so that the clock can keep pace with it; whereas the actual 
sun crosses the meridian sometimes before and sometimes after noon as showi) 
by the clock. 



CHAPTER III. 

PRODUCTION. CONSUMPTION. LABOUR. NECESSARIES. 

§ 1 . Man cannot create material things. In the mental ii, m, i. 
and moral world indeed he may produce new ideas; but 
when he is said to produce material things, he really only 
produces utilities; or in other words, his efforts and sacrifices 
result in changing the form or arrangement of matter to utilities^ 
adapt it better for the satisfaction of wants. All that he in^mTtter. 
can do in the physical world is either to readjust matter so 
as to make it more useful, as when he makes a log of wood 
into a table; or to put it in the way of being made more 
useful by nature, as when he puts seed where the forces of 
nature will make it burst out into life^. 

It is sometimes said that traders do not produce : that The trader 
while the cabinet-maker produces furniture, the furniture- 
dealer merely sells what is already produced. But there is ‘ 
no scientific foundation for this distinction. They both 
produce utilities, and neither of them can do more: the 
furniture-dealer moves and rearranges matter so as to 
make it more serviceable than it was before, and the car- 
penter does nothing more. The sailor or the railway-man 
who carries coal above ground produces it, just as much 
as the miner who carries it underground; the dealer in fish 
helps to move on fish from where it is of comparatively little 
use to where it is of greater use, and the fisherman does no 
more. It is true that there are often more traders than are 
necessary; and that, whenever that is the case, there is a 

' Bacon, Novum Organon it., gays **Ad opera nil aliud potest homo quam ut 
corpora naturalia admoreat et amoveat, reliqua natura intus agit*’ (quoted by 
Bonar, Philoiophy and PoUtieal Economy f p. 2^}. 



64 


II, m, 1. 


Man can 

consume, 

as be can 

produce, 

only 

utilities. 


Consvmers^ 

and 

producers* 

goods. 


PRODUCTION. CONSUMPTION. LABOUR. NECESSARIES 

waste. But there is also waste if there are two men to a 
plough which can be well worked by one man; in both cases 
all those who are at work produce, though they may produce 
but little. Some writers have revived the mediaeval attacks 
on trade on the ground that it does not produce. But they 
have not aimed at the right mark. They should have 
attacked the imperfect organization of trade, particularly 
of retail trade^. 

Consumption may be regarded as negative production. 
Just as man can produce only utilities, so he can consume 
nothing more. He can produce services and other imma- 
terial products, and he can consume them. But as his 
production of material products is really nothing more than 
a rearrangement of matter which gives it new utilities; so 
his consumption of them is nothing more than a disarrange- 
ment of matter, which diminishes or destroys its utilities. 
Often indeed when he is said to consume things, he does 
nothing more than to hold them for his use, while, as 
Senior says, they ‘‘are destroyed by those numerous gradual 
agents which we call collectively As the “producer’’ 

of wheat is he who puts seed where nature will make it 
grow, so the “consumer” of pictures, of curtains, and even 
of a house or a yacht does little to wear them out himself; 
but he uses them while time wastes them. 

Another distinction to which some prominence has been 
given, but which is vague and perhaps not of much practical 
use, is that between consumers^ goods (called also consumption 
goods, or again goods of the first order), such as food, clothes, 
etc., which satisfy wants directly on the one hand; and, on 
the other hand, producers' goods (called also production 
goods, or again instrumental, or again intermediate goods), 
such as ploughs and looms and raw cotton, which satisfy 
wants indirectly by contributing towards the production of 
the first class of goods®. 

^ Production, in the narrow sense, changes the form and nature of products. 
Trade and transport change their external relations. 

* Political Economy, p. 54. Senior would like to substitute the verb ** to use ** 
for the verb “to consume.’’ 

* Thus flour to be made into a cake when already in the house of the consumer, 
is treated by some as a consumers’ good; while not only the flour, but the cake 
itself is treated as a producers’ good when in the hand of the confectioner. 



PRODUCTIVE LABOUR 


66 


§ 2. All labour is directed towards producing some effect, ii, m, 2. 
For though some exertions are taken merely for their own Nearly aii 
sake, as when a game is played for amusement, they are not gom^LnsT 
counted as labour. We may define labour as any exertion productive, 
of mind or body undergone partly or wholly with a view to 
some good other than the pleasure derived directly from the 
work^. And if we had to make a fresh start it would be 
best to regard all labour as productive except that which 
failed to promote the aim towards which it was directed, 
and so produced no utility. But in all the many changes 
which the meaning of the word ‘'productive'’ has undergone, 
it has had special reference to stored>up wealth, to the 
comparative neglect and sometimes even to the exclusion 
of immediate and transitory enjoyment^; and an almost 
unbroken tradition compels us to regard the central notion 

Carl Menger {Volkswirilischaftslehre, ch. i. §2) says bread belongs to the fir^t 
order, flour to the second, a flour mill to the third order and so on. It appears 
that if a railway train carries people on a pleasure excursion, also some tins of 
biscuits, and milling machinery and some machinery that is used for making 
milling machinery; then the train is at one and the same time a good of the first, 
second, third and fourth orders. 

^ This is Jevons^ definition {Theory of Political Economy^ ch. v.), except 
that he includes only painful exertions. But he himself points out how painful 
idleness often is. Most people work more than they would if they considered 
only the direct pleasure resulting from the work; but in a healthy state, pleasure 
predominates over pain in a great part even of the work that is done for hire. 

Of course the definition is elastic; an agricultural labourer working in his 
garden in the evening thinks chiefly of the fruit of his labours; a mechanic 
returning home after a day of sedentary toil finds positive pleasure in his garden 
work, but he too cares a good deal about the fruit of his labour; while a rich 
man working in like manner, though he may take a pride in doing it well, will 
probably care little for any pecuniary saving that he effects by it. 

* Thus the Mercantilists who regarded the precious metals, partly because 
they were imperishable, as wealth in a fuller sense than anything else, regarded 
as unproductive or “sterile’’ all labour that was not directed to producing goods 
for exportation in exchange for gold and silver. The Physiocrats thought 
all labour sterile which consumed an equal value to that which it produced; 
and regarded the agriculturist as the only productive worker, because his labour 
alone (as they thought) left behind it a net surplus of stored-up wealth. Adam 
Smith softened down the Physiocratic definition; but still he considered that 
agricultural labour was more productive than any other. His followers discarded 
this distinction; but they have generally adhered, though with many differences 
in points of detail, to the notion that productive labour is that which tends to 
increase accumulated wealth; a notion which is implied rather than stated in the 
celebrated chapter of The Wealth of Nations which bears the title, “On the 
Accumulation of Capital, or on Productive and Unproductive Labour.” (Comp. 

Travers Twiss, Progress of Political Economy^ Sect, vi., and the discussions on 
the word Productive in J. S. Mill’s Essay s^ and in his Principles of Political 
Economy.) 


M. 


3 



66 


PRODUCTION. CONSUMPTION. LABOUR. NECESSARIES 


II, m, 3. ot the word as relating to the provision for the wants of the 
Bumat future rather than those of the present. It is true that all 
generally wholesome enjoyments, whether luxurious or not, are legiti- 
said to be mate ends of action both public and private; and it is true 

specially . . 

productive that the enjoyment of luxuries affords an incentive to 
provides exeition, and promotes progress in many ways. But if the 
wante^of efficiency and energy of industry are the same, the true 
raLe^^'^*^^ interest of a country is generally advanced by the subordina- 
than the tiou of the desire for transient luxuries to the attainment of 
present, more solid and lasting resources which will assist 

industry in its future work, and will in various ways tend 
to make life larger. This general idea has been in solution, 
as it were, in all stages of economic theory; and has been 
precipitated by different writers into various hard and fast 
distinctions by which certain trades have been marked off as 
productive and certain others as unproductive. 

The work For instance, many writers even of recent times have 
seira^ts^is^ adhered to Adam Smith’s plan of classing domestic servants 
sarii^^^un-' unproductive. There is doubtless in many large houses 
productive, a superabundance of servants, some of whose energies might 
with advantage to the community be transferred to other 
uses: but the same is true of the greater part of those who 
earn their livelihood by distilling whisky ; and yet no econo- 
mist has proposed to call them unproductive. There is 
no distinction in character between the work of the baker 
who provides bread for a family, and that of the cook who 
boils potatoes. If the baker should be a confectioner, or 
fancy baker, it is probable that he spends at least as much 
of his time as the domestic cook does, on labour that is 
unproductive in the popular sense of providing unnecessary 
enjoyments. 

Provisional Whenever we use the word Productive by itself, it is to 
of froduc- be understood to mean productive of the means of production, 
and of durable sources of enjoyment. But it is a slippery 
term, and should not be used where precision is needed^. 

^ Among the means of production are included the necessaries of labour but 
not ephemeral luxuries; and the maker of ices is thus classed as improductive 
whether he is working for a pastry-cook, or as a private servant in a countiy house. 
But a bricklayer engaged in building a theatre is classed as productive. No doubt 
the division between permanent and ephemeral sources of enjoyment is ?ague 



PRODUCTIVE LABOUR AND PRODUCTIVE CONSUMPTION 


67 


If ever we want to use it in a different sense, we must ii, m, 3. 
say so: for instance we may speak of labour as productive of 
necessaries, etc. 

Productive consumption, when employed as a technical Productive 
term, is commonly defined as the use of wealth in the 
production of further wealth; and it should properly include 
not all the consumption of productive workers, but only that 
which is necessary for their efficiency. The term may per- 
haps be useful in studies of the accumulation of material 
wealth. But it is apt to mislead. For consumption is the 
end of production; and all wholesome consumption is pro- 
ductive of benefits, many of the most worthy of which do 
not directly contribute to the production of material wealth^. 

§ 3. This brings us to consider the term Necessaries. Necca- 
It is common to distinguish necessaries, comforts, and 
luxuries; the first class including all things required 
meet wants which must be satisfied, while the latter consist be 

satislRed. 

of things that meet wants of a less urgent character. But But^this 
here again there is a troublesome ambiguity. When we say ^bi^ous. 
that a want must be satisfied, what are the consequences 
which we have in view if it is not satisfied? Do they 

and unsubstantial. But this difliculty exists in the nature of things and cannot be 
completely evaded by any device of words. We can speak of an increase of tall 
men relatively to short, without deciding whether all those above five feet nine 
inches are to be classed as tall, or only those above five feet ten. And we can 
speak of the increase of productive labour at the expense of unproductive without 
fixing on any rigid, and therefore arbitrary line of division between them. If such 
an artificial line is required for any particular purpose, it must be drawn explicitly 
for the occasion. But in fact such occasions seldom or never occur. 

' All the distinctions in which the word Productive is used are very thin and 
have a certain air of unreality. It would hardly be worth while to introduce them 
now: but they have a long history; and it is probably better that they should 
dwindle gradually out of use, rather than be suddenly discarded. 

The attempt to draw a bard and fast line of distinction where there is no 
real discontinuity in nature has often done more mischief, but has perhaps 
never led to more quaint results, than in the rigid definitions which have been 
sometimes given of this term Productive. Some of them for instance lead to 
the conclusion that a singer in an opera is unproductive, that the printer of the 
tickets of admission to the opera is productive; while the usher who shows 
people to their places is unproductive, unless he happens to sell programmes, and 
then he is productive. Senior points out that **a cook is not said to make roast 
meat but to dress it; but he is said to make a pudding. . . . A tailor is said to make 
cloth into a coat, a dyer is not said to make undyed cloth into dyed cloth. The 
change produced by the dyer is perhaps greater than that produced by the tailor, 
but the cloth in passing through the tailor’s hands changes its name; in passing 
through the dyer’s it does not: the dyer has not produced a netc name, nor 
consequently a nets iking.** Pol. Eton. pp. 51, 2» 



68 


II, m, 3. 


The term 
Neces- 
saries is 
elliptical. 


Neces- 
saries for 
existence 
and for 
efficiency. 


PRODUCTION. CONSUMPTION. LABOUR. NECESSARIES 

include death? Or do they extend only to the loss of 
strength and vigour? In other words, are necessaries the 
things which are necessary for life, or those which are 
necessary for efficiency? 

The term Necessaries, like the term Productive, has been 
used elliptically, the subject to which it refers being left to 
be supplied by the reader; and since the implied subject has 
varied, the reader has often supplied one which the writer 
did not intend, and thus misunderstood his drift. In this, 
as in the preceding case, the chief source of confusion can be 
removed by supplying explicitly in every critical place that 
which the reader is intended to understand. 

The older use of the term Necessaries was limited to 
those things which were sufficient to enable the labourers, 
taken one with another, to support themselves and their 
families. Adam Smith and the more careful of his followers 
observed indeed variations in the standard of comfort and 
“decency”: and they recognized that differences of climate 
and differences of custom make things necessary in some 
cases, which are superfluous in others^. But Adam Smith was 
influenced by reasonings of the Physiocrats: they were based 
on the condition of the French people in the eighteenth century, 
most of whom had no notion of any necessaries beyond those 
which were required for mere existence. In happier times, 
however, a more careful analysis has made it evident that there 
is for each rank of industry, at any time and place, a more or 
less clearly defined income which is necessary for merely 
sustaining its members; while there is another and larger 
income which is necessary for keeping it in full efficiency^. 

^ Compare Carver, Principles of Political Economy y p. 474; which called my 
attention to Adam Smith’s observation that customary decencies are in effect 
necessaries. 

* Thus in the South of England population has increased during the last hundred 
years at a fair rate, allowance being made for migration. But the efficiency of 
labour, which in earlier times was as high as that in the North of England, has 
sunk relatively to the North; so that the low- waged labour of the South is often 
dearer than the more highly-paid labour of the North. We cannot thus say 
whether the labourers in the South have been supph'ed with necessaries, unless 
we know in which of these two senses the word is used. They have had the bare 
necessaries for existence and the increase of numbers, but apparently they have 
not had the necessaries for efficiency. It must however be remembered that the 
strongest labourers in the South have constantly migrated to the North; and that 
the energies of those in the North have been raised by their larger share of 



NECESSARIES FOR EFFICIENCY 


69 


It may be true that the wages of any industrial class ii, m, 4. 
might have sufficed to maintain a higher efficiency, if they Account 
had been spent with perfect wisdom. But every estimate of 
necessaries must be relative to a given place and time; condftions 
unless there be a special interpretation clause to the contrary, of 
it may be assumed that the wages will be spent with just and of the 
that amount of wisdom, forethought, and unselfishness, which 
prevails in fact among the industrial class under discussion. 

With this understanding we may say that the income of any 
class in the ranks of industry is below its necessary level, Neces- 
when any increase in their income would in the course of 
time produce a more than proportionate increase in their 
efficiency. Consumption may be economized by a change of 
habits, but any stinting of necessaries is wasteful^. 

§ 4. Some detailed study of the necessaries for efficiency iiiustra- 
of different classes of workers will have to be made, when we c^^an^s^of 
come to inquire into the causes that determine the supply of 
efficient labour. But it will serve to give some definiteness 
to our ideas, if we consider here what are the necessaries for 
the efficiency of an ordinary agricultural or of an unskilled 
town labourer and his family, in England, in this generation. 

They may be said to consist of a well-drained dwelling with 
several rooms, warm clothing, with some changes of under- 
clothing, pure water, a plentiful supply of cereal food, with a 
moderate allowance of meat and milk, and a little tea, etc., 
some education and some recreation, and lastly, sufficient 
freedom for his wife from other work to enable her to 
perform properly her maternal and her household duties. 

If in any district unskilled labour is deprived of any of these 

economic freedom and of the hope of rising to a higher position. See Mackay 
in Charity Organization Journal^ Feb. 1891. 

^ If we considered an individual of exceptional abilities we should have to take 
account of the fact that there is not likely to be the same close correspondence 
between the real value of his work for the community and the income which he 
earns by it, that there is in the case of an ordinary member of any industrial class. 

And we should have to say that all his consumption is strictly productive and 
necessary, so long as by cutting off any part of it he would diminish his efficiency 
by an amount that is of more real value to him or the rest of the world than he 
saved from his consumption. If a Newton or a Watt could have added a hundredth 
part to his efficiency by doubling his personal expenditure, the increase in his 
consumption would have been truly productive. As we shall see later on, such a 
case is analogous to additional cultivation of rich land that bears a high rent: it 
may be profitable though the return to it is less than in proportion to the previous 
outlay. 



70 


PRODUCTION. CONSUMPTION. LABOUR. NECESSARIES 


II, m, 4. 

There if 

waste 

when 

any one 

consumes 

less than is 

necessary. 

Convene 

iional 

necessaries. 


things, its efficiency will suffer in the same way as that of a 
horse that is not properly tended, or a steam-engine that has 
an inadequate supply of coals. All consumption up to this 
limit is strictly productive consumption: any stinting of this 
consumption is not economical, but wasteful. 

In addition, perhaps, some consumption of alcohol and 
tobacco, and some indulgence in fashionable dress are in 
many places so habitual, that they may be said to be 
conventionally necessary, since in order to obtain them the 
average man and woman will sacrifice some things which 
are necessary for efficiency. Their wages are therefore less 
than are practically necessary for efficiency, unless they pro- 
vide not only for what is strictly necessary consumption, but 
include also a certain amount of conventional necessaries^. 

The consumption of conventional necessaries by produc- 
tive workers is commonly classed as productive consumption ; 
but strictly speaking it ought not to be; and in critical 
passages a special interpretation clause should be added to 
say whether or not they are included. 

It should however be noticed that many things which 
are rightly described as superfluous luxuries, do yet, to some 
extent, take the place of necessaries; and to that extent 
their consumption is productive when they are consumed 
by producers*. 

* Compare the distinction between ** Physical and Political Necessaries*' in 
James Steuart’a Inquiry, a,j>, 1767, 11. zxi. 

* Thus a dish of green peas in March, costing perhaps ten shillings, is a 
superfluous luxury: but yet it is wholesome food, and does the work perhaps of 
three pennyworth of cabbage; or even, since variety undoubtedly conduces to 
health, a little more than that. So it may be entered perhaps at the value of 
fourpence under the head of necessaries, and at that of nine shillings and 
eigbtpence under that of superfluities; and its consumption may be regarded as 
strictly productive to the extent of one-fortieth. In exceptional cases, as for 
instance when the peas are given to an invalid, the whole ten shillings may be 
well spent, and reproduce their own value. 

For the sake of giving deflm'teness to the ideas it may be well to venture on 
estimates of necessaries, rough and random as they must be. Perhaps at present 
prices the strict necessaries for an average agricultural family are covered by 
fifteen or eighteen shillings a week, the conventional necessaries by about five 
shillings more. For the unskilled labourer in the town a few shillings must be 
added to the strict necessaries. For the family of the skilled workman living 
in a town we may take twenty-five or thirty shillings for strict necessaries, and 
ten shillings for conventional necessaries. For a man whose brain has to undergo 
great continuous strain the strict necessaries are perhaps two hundred or two 
hundred and fifty pounds a year if he is a bachelor: but more than twice as 
much if he has an expensive family to educate. Hii conventional necessaries 
depend on the nature of his calling. 



CHAPTER IV. 

INCOME. CAPITAL. 

§ 1. In a primitive community each family is nearly self- n, iv, i. 
sufficing, and provides most of its own food and clothing and incomTin 
even household furniture. Only a very small part of the 
income, or comings in, of the family is in the form of 
money; when one thinks of their income at all, one reckons 
in the benefits which they get from their cooking utensils, 
just as much as those which they get from their plough: 
one draws no distinction between their capital and the rest 
of their accumulated stock, to which the cooking utensils 
and the plough alike belong^. 

But with the growth of a money economy there has been Corre- 
a strong tendency to confine the notion of income to those to moicy- 
incomings which are in the form of money; including 
“payments in kind’^ (such as the free use of a house, free 
coals, gas, water), which are given as part of an employee’s 
remuneration, and in lieu of money payments. 

In harmony with this meaning of Income, the language we have 
of the market-place commonly regards a man’s capital 
as that part of his wealth which he devotes to acquiring 
an income in the form of money; or, more generally, to 
acquisition {Erwerbung) by means of trade. It may be 
convenient sometimes to speak of this as his trade capital\ 

^ This and similar facts have led some people to suppose not only that some 
parts of the modem analysis of distribution and exchange are inapplicable to a 
primitive community; which is true: but also that there are no important parts 
of it that are applicable; which is not tme. This is a striking instance of the 
dangers that arise from allowing ourselves to become the servants of words, 
avoiding the hard work that is required for discovering unity of substance under- 
lying variety of form. 



72 


INCOME. CAPITAL 


II, IV, 2. which may be defined to consist of those external goods 
which a person uses in his trade, either holding them to be 
sold for money or applying them to produce things that are 
Its to be sold for money. Among its conspicuous elements are 
^icuous ' such things as the factory and the business plant of a manu- 
elements. f^c^urer; that is, his machinery, his raw material, any food, 
clothing, and house-room that he may hold for the use of his 
employees, and the goodwill of his business. 

To the things in his possession must be added those to 
which he has a right and from which he is drawing income: 
including loans which he has made on mortgage or in other 
ways, and all the command over capital which he may hold 
under the complex forms of the modern ‘‘money market.” 
On the other hand debts owed by him must be deducted 
from his capital. 

This definition of capital from the individual or business 
point of view is firmly established in ordinary usage; and it 
will be assumed throughout the present treatise whenever 
we are discussing problems relating to business in general, 
and in particular to the supply of any particular group of 
commodities for sale in open market. Income and capital 
will be discussed from the point of view of private business 
in the first half of the chapter; and afterwards the social 
point of view will be considered. 

§ 2. If a person is engaged in business, he is sure to 
have to incur certain outgoings for raw material, the hire of 
labour, etc. And, in that case, his true or net income is found 
by deducting from his gross income “the outgoings that 
belong to its production^.” 

Anything which a person does for which he is paid 
directly or indirectly in money, swells his nominal income; 
while no services that he performs for himself are commonly 
reckoned as adding to his nominal income. But, though it is 
best generally to neglect them when they are trivial, account 
should for consistency be taken of them, when they are of a 
kind which people commonly pay for having done for them. 
Thus a woman who makes her own clothes or a man who 
digs in his own garden or repairs his own house, is earning 

’ See a report of a Ck)mmittee of the British Association, 1878, on the Income Tax. 



THE POINT OF VIEW OF ORDINAEY BUSINESS 


73 


income; just as would the dressmaker, gardener or carpenter ii, iv, 2. 
who might be hired to do the work. 

In this connection we may introduce a term of which we Pro- 
shall have to make frequent use hereafter. The need for itdefiSSon 
arises from the fact that every occupation involves other 
disadvantages besides the fatigue of the work required in it, 
and every occupation offers other advantages besides the 
receipt of money wages. The true reward which an occupa- 
tion offers to labour has to be calculated by deducting the 
money value of all its disadvantages from that of all its 
advantages; and we may describe this true reward as the 
net advantages of the occupation. 

The payment made by a borrower for the use of a loan interest of 
for, say, a year is expressed as the ratio which that payment 
bears to the loan, and is called interest. And this term is 
also used more broadly to represent the money equivalent of 
the whole income which is derived from capital. It is com- 
monly expressed as a certain percentage on the ‘‘capital’' 
sum of the loan. Whenever this is done the capital must not 
be regarded as a stock of things in general. It must be 
regarded as a stock of one particular thing, money, which 
is taken to represent them. Thus £100 may be lent at 
four per cent., that is for an interest of £4 yearly. And, 
if a man employs in business a capital stock of goods of 
various kinds which are estimated as worth £10,000 in all; 
then £400 a year may be said to represent interest at the rate 
of four per cent, on that capital, on the supposition that 
the aggregate money value of the things which constitute 
it has remained unchanged. He would not, however, be 
willing to continue the business unless he expected his total 
net gains from it to exceed interest on his capital at the Profits, 
current rate. These gains are called profits. 

The command over goods to a given money value, which Free or 
can be applied to any purpose, is often described as “free” or 
“floating” capital^. 

* Professor Clark lias made the suggestion to distinguish between Fure Capital 
and Capital Ooods: the former is to correspond to a waterfall which remains 
stationary; while Capital Goods are the particular things which enter and leave 
the business, as particular drops pass through the wateifall. He would of course 
connect interest with pure capital, not with capital goods. 



74 


INCOME. CAPITAL 


11 , IT, 2 . 


Earnings 
of manage- 
ment. 


Bents and 

Qiiasi- 

rents. 


When a man is engaged in business, his profits for the 
year are the excess of his receipts from his business during 
the year over his outlay for his business. The difference 
between the value of his stock of plant, material, etc. at the 
end and at the beginning of the year is taken as part of his 
receipts or as part of his outlay, according as there has been 
an increase or decrease of value. What remains of his 
profits after deducting interest on his capital at the current 
rate (allowing, where necessary, for insurance) is generally 
called his earnings of undertaking or managemerU. The 
ratio in which his profits for the year stand to his capital is 
spoken of as his rate of profits. But this phrase, like the 
corresponding phrase with regard to interest, assumes that 
the money value of the things which constitute his capital 
has been estimated: and such an estimate is often found to 
involve great difficulties. 

When any particular thing, as a house, a piano, or a 
sewing machine is lent out, the payment for it is often called 
Rent, And economists may follow this practice without incon- 
venience when they are regarding the income from the point 
of view of the individual trader. But, as will be argued 
presently, the balance of advantage seems to lie in favour of 
reserving the term Rent for the income derived from the 
free gifts of nature, whenever the discussion of business 
affairs passes from the point of view of the individual to that 
of society at large. And for that reason, the term Quasi- 
rent will be used in the present volume for the income 
derived from machines and other appliances for production 
made by man. That is to say, any particular machine may 
yield an income which is of the nature of a rent, and which is 
sometimes called a Rent; though on the whole, there seems 
to be some advantage in calling it a Quasi-rent. But we 
cannot properly speak of the interest yielded by a machine. 
If we use the term ‘"interest” at all, it must be in relation 
not to the machine itself, but to its money value. For 
instance if the work done by a machine which cost £100 is 
worth £4 a year net, that machine is yielding a quasi-rent 
of £4 which is equivalent to interest at four per cent, on its 
original cost; but if the machine is worth only £80 now, it 



DEFINITIONS OP TECHNICAL TERMS 


76 


is yielding five per cent, on its present value. This however ii, iv, 3, 
raises some difficult questions of principle, which will be 
discussed in Book V. 

§ 3. Next to consider some details relating to capital. 

It has been classed as Consumption capital, and Auxiliary or 
Instrumental capital: and though no clear distinction can 
be drawn between the two classes, it may sometimes be 
convenient to use the terms, with the understanding that 
they are vague. Where definiteness is necessary, the terms 
should be avoided; and explicit enumerations should be 
given. The general notion of the distinction which the 
terms are designed to suggest, can be gathered from the 
following approximate definitions. 

Consumption capital consists of goods in a form to satisfy Con- 
wants directly; that is, goods which afford a direct sus-ca^fjj.^” 
tenance to the workers, such as food, clothes, house-room, etc. 

Auxiliary, or instrumental, capital is so called because it Aiuniiary 
consists of all the goods that aid labour in production, mental 
Under this head come tools, machines, factories, railways, 
docks, ships, etc.; and raw materials of all kinds. 

But of course a man’s clothes assist him in his work and 
are instrumental in keeping him warm; and he derives a 
direct benefit from the shelter of his factory as he does from 
the shelter of his house^. 

We may follow Mill in distinguishing circulating capital Circu- 
“which fulfils the whole of its office in the production 
which it is engaged, by a single use,” from fixed capital 
“which exists in a durable shape and the return to which is 
spread over a period of corresponding duration^.” 

§4. The customary point of view of the business man Transition 
is that which is most convenient for the economist to adopt soda? 
when discussing the production of goods for a market, and 
the causes which govern their exchange value. But there is income, 
a broader point of view which the business man, no less than 

‘ See above II. m. 1. 

• Adam Smith’s distinction between fixed and drculating capital turned on 
the question whether the goods ** yield a profit without changing masters” or not. 

Ricardo made it turn on whether they are “of slow consumption or require to be 
frequently reproduced”; but he truly remarks that this is “a division not essential, 
and in which the line of demarcation cannot be accurately drawn.” Mill’s modifi- 
cation is generally accepted by modem economists. 



76 


INCOME. CAPITAL 


II, IT, 4. 


In practi- 
cal matters 
theoretical 
complete- 
ness may 
be pur- 
chased at 
too great 
a cost. 


the economist, must adopt when he studies the causes which 
govern the material wellbeing of the community as a whole. 
Ordinary conversation may pass from one point of view to 
another without any formal note of the change: for if 
a misunderstanding arises it soon becomes manifest; and 
confusion is cut short by a question or by a volunteered 
explanation. But the economist may take no risks of that 
sort: he must make prominent any change in his point of 
view or in his uses of terms. His path might have seemed 
smoother for the time, if he had passed silently from one use 
to another: but in the long run better progress is made by 
a clear indication of the meaning attached to each term in 
every doubtful case^. 

Let us then during the remainder of this chapter de- 
liberately adopt the social^ in contrast with the individual 
point of view : let us look at the production of the community 
as a whole, and at its total net income available for all 
purposes. That is, let us revert nearly to the point of view 
of a primitive people, who are chiefly concerned with the 
production of desirable things, and with their direct uses; 
and who are little concerned with exchange and marketing. 

From this point of view income is regarded as including 
all the benefits which mankind derive at any time from their 
efforts, in the present and in the past, to turn nature’s re- 
sources to their best account. The pleasure derived from the 
beauties of the rainbow, or the sweet taste of the fresh morn- 
ing air, are left out of the reckoning, not because they are 
unimportant, nor because the estimate would in any way 
be vitiated by including them; but solely because reckoning 
them in would serve no good purpose, while it would add 
greatly to the length of our sentences and the prolixity of 
our discussions. For a similar reason it is not worth while to 
take separate account of the simple services which nearly 
every one renders to himself, such as putting on his clothes; 
though there are a few persons who choose to pay others to do 
such things for them. Their exclusion involves no principle; 
and time spent by some controversial writers on discussing.it 
has been wasted. It simply follows the maxim De minimis 

* Compare above Jl, i. 3. 



CAPITAL FROM THE SOCIAL POINT OF VIEW 


77 


non curat lex. A driver who, not noticing a pool in his way, ii, iv, 4. 
splashes a passer by is not held to have done him legal injury; 
though there is no distinction in principle between his act 
and that of another, who by a similar lack of attention, did 
serious harm to someone else. 

A man’s present labour yields him income directly, when 
devoted to his own use; and he looks to be paid for it in 
some form or another if he devotes it as a matter of business 
to the service of others. Similarly any useful thing which * 
he has made or acquired in the past, or which has been handed 
down to him, under the existing institutions of property, by 
others who have so made or acquired it, is generally a source 
of material benefit to him directly or indirectly. If he 
applies it in business, this income generally appears in the 
form of money. But a broader use of this term is occasion- 
ally needed, which embraces the whole income of benefits 
of every sort which a person derives from the ownership 
of property however applied: it includes for instance the 
benefits which he gets from the use of his own piano, 
equally with those which a piano dealer would win by letting 
out a piano on hire. The language of common life while 
averse to so broad a use of the term Income as this even 
when discussing social problems, yet habitually includes a 
certain number of forms of income, other than money income. 

The Income Tax Commissioners count a dwelling-house 
inhabited by its owner as a source of taxable income, though 
it yields its income of comfort directly. They do this, not 
on any abstract principle; but partly because of the practical 
importance of house-room, partly because the ownership of a 
house is commonly treated in a business fashion, and partly 
because the real income accruing from it can easily be 
separated off and estimated. They do not claim to establish 
any absolute distinction in kind between the things which 
their rule includes, and those which it excludes. 

J evons, regarding the problem from a purely mathematical 
point of view, was justified in classing all commodities in 
the hands of consumers as capital. But some writers, while 
developing this suggestion with great ingenuity, have treated 
it as a great principle; and that appears to be an error in 



78 


INCOME. CAPITAL 


ii,iY, 5. judgment. A true sense of proportion requires us not to 
burden our work with the incessant enumeration of details 
of secondary importance, of which no account is taken in 
customary discourse, and which cannot even be described 
without ofiending against popular conventions. 

Thecorre- §5. This brings us to consider the use of the term 
income and Capital from the point of view of inquiries into the material 
capital wellbeing of society as a whole. Adam Smith said that 
a person’s capital is that part of his stock from which he 
expects to derive an income. And almost every use of the 
term capital, which is known to history, has corresponded 
more or less closely to a parallel use of the term Income: 
in almost every use, capital has been that part of a man’s 
stock from which he expects to derive an income. 

By far the most important use of the term Capital in 
general, i.e. from the social point of view, is in the inquiry 
how the three agents of production, land (that is, natural 
agents), labour and capital, contribute to producing the 
national income (or the national dividend, as it will be called 
later on); and how that income is distributed among the 
three agents. And this is an additional reason for making 
the terms Capital and Income correlative from the social, 
as we did from the individual point of view. 

Meaning Accordingly it is proposed in this treatise to count as 
Seatise of P^rt of Capital from the social point of view all things other 
than land, which yield income that is generally reckoned as 
andXoruf such in common discourse; together with similar things in 

from the ^ 

social point public ownership, such as government factories: the term 
° Land being taken to include all free gifts of nature, such as 

mines, fisheries, etc., which yield income. 

Thus it will include all things held for trade purposes, 
whether machinery, raw material or finished goods; theatres 
and hotels; home farms and houses: but not furniture or 
clothes owned by those who use them. For the former are 
and the latter are not commonly regarded as yielding income 
by the world at large, as is shown by the practice of the 
income tax commissioners. 

This usage of the term is in harmony with the common 
practice of economists of treating social problems in broad 



CAPITAL AND INCOME FROM THE SOCIAL POINT OF VIEW 


79 


outline to start with, and reserving minor details for later ii, iv, 6. 
consideration: it is in harmony also with their common 
practice of taking Labour to include those activities, and 
those only, which are regarded as the source of income in this 
broader use of the term. Labour together with capital and 
land thus defined are the sources of all that income of which 
account is commonly taken in reckoning up the National 
Income^. 

§ 6. Social income may be estimated by adding together Elements 
the incomes of the individuals in the society in question, fncome^^ 
whether it be a nation or any other group of persons. ^ danger 
We must however not count the same thing twice. If 

° counted 

we have counted a carpet at its full value, we have already twice or 
counted the values of the yarn and the labour that were used 
in making it; and these must not be counted again. And 
further, if the carpet was made of wool that was in stock 
at the beginning of the year, the value of that wool must 
be deducted from the value of the carpet before the net 
income of the year is reached; while similar deduction must 
be made for the wear and tear of machinery and other plant 
used in making it. This is required by the general rule, 
with which we started, that true or net income is found by 
deducting from gross income the outgoings that belong to 
its production. 

But if the carpet is cleaned by domestic servants or at 
steam scouring works, the value of the labour spent in clean- 
ing it must be counted in separately; for otherwise the 
results of this labour would be altogether omitted from 
the inventory of those newly-produced commodities and 
conveniences which constitute the real income of the 
country. The work of domestic servants is always classed as 
“labour” in the technical sense; and since it can be assessed 
en bloc at the value of their remuneration in money and in kind 
without being enumerated in detail, its inclusion raises no great 

‘ Just as for practical purposes it is better not to encumber ourselves with 
specifying the “income” of benefit which a man derives from the labour of 
brushing his hat in the morning, so it is better to ignore the element of capital 
vested in his brush. But no such consideration arises in a merely abstract 
discussion: and therefore the logical simplicity of Jevons’ dictum that com* 
modities in the hands of consumers are capital has some advantages and no 
disadvantages for mathematical versions of economic doctrines. 



80 


mcOME. CAPITAL 


II, IV, 7. 


National 

income is 

a better 

measure 

of general 

economic 

prosperity 

than 

national 

wealth. 


statistical difficulty. There is however some inconsistency in 
omitting the heavy domestic work which is done by women and 
other members of the household, where no servants are kept. 

Again, suppose a landowner with an annual income of 
£10,000 hires a private secretary at a salary of £500, who 
hires a servant at wages of £50. It may seem that if the 
incomes of all these three persons are counted in as part of 
the net income of the country, some of it will be counted 
twice over, and some three times. But this is not the case. 
The landlord transfers to his secretary, in return for his 
assistance, part of the purchasing power derived from the 
produce of land; and the secretary again transfers part of 
this to his servant in return for his assistance. The farm 
produce the value of which goes as rent to the landlord, the 
assistance which the landlord derives from the work of the 
secretary, and that which the secretary derives from the work 
of the servant are independent parts of the real net income 
of the country; and therefore the £10,000 and the £500 and 
the £50 which are their money measures, must all be counted 
in when we are estimating the income of the country. But 
if the landlord makes an allowance of £500 a year to his son, 
that must not be counted as an independent income ; because 
no services are rendered for it. And it would not be assessed 
to the Income tax. 

As the net payments on account of interest etc. due to 
an individual — net, i.e, after deducting those due from him 
to others — are part of his income, so the money and other 
things received net by a nation from other countries are part 
of its income. 

§ 7. The money income, or inflow, of wealth gives a 
measure of a nation’s prosperity, which, untrustworthy as it 
is, is yet in some respects better than that afforded by the 
money value of its stock of wealth. 

For income consists chiefly of commodities in a form to 
give pleasure directly; while the greater part of national 
wealth consists of the means of production, which are of 
service to the nation only in so far as they contribute to pro- 
ducing commodities ready for consumption. And further, 
though this is a minor point, consumable commodities, being 



PROSPECrriVENESS AND PRODUCTIVENESS 


81 


more portable, have more nearly uniform prices all the world ii, iv, s. 
over than the things used in producing them: the prices of 
an acre of good land in Manitoba and Kent differ more than 
those of a bushel of wheat in the two places. 

But if we look chiefly at the income of a country we must 
allow for the depreciation of the sources from which it is 
derived. More must be deducted from the income derived 
from a house if it is made of wood, than if it is made of 
stone; a stone house counts for more towards the real rich- 
ness of a country than a wooden house which gives equally 
good accommodation. Again, a mine may yield for a time a 
large income, but be exhausted in a few years: in that case, 
it must be counted as equivalent to a field, or a fishery, 
which yields a much smaller annual income, but will yield 
that income permanently. 

§ 8 . In purely abstract, and especially in mathematical. Prospect- 
reasoning the terms Capital and Wealth are used as ami 
synonymous almost perforce, except that “land"’ proper 
may for some purposes be omitted from Capital. But there 
is a clear tradition that we should speak of Capital when for capital 
considering things as agents of production; and that we supply 
should speak of Wealth when considering them as results®**^' 
of production, as subjects of consumption and as yielding 
pleasures of possession. Thus the chief demand for capital 
arises from its productiveness, from the services which it 
renders, for instance, in enabling wool to be spun and woven 
more easily than by the unaided hand, or in causing water 
to flow freely wherever it is wanted instead of being carried 
laboriously in pails; (though there are other uses of capital, 
as for instance when it is lent to a spendthrift, which cannot 
easily be brought under this head). On the other hand the 
supply of capital is controlled by the fact that, in order to 
accumulate it, men must act prospectively: they must ‘‘ wait” 
and ‘‘save,” they .must sacrifice the present to the future. 

At the beginning of this Book it was argued that the 
economist, must forego the aid of a complete set of technical 
terms. He must make the terms in common use serve his 
purpose in the expression of precise thought, by the aid of 
qualifying adjectives or other indications in the context. If 



82 


mCOMB. CAPITAL 


II, IT, 8, he arbitrarily assigns a rigid exact use to a word which has 
several more or less vague uses in the market place, he 
confuses business men, and he is in some danger of com- 
mitting himself to untenable positions. The selection of 
a normal use for such terms as Income and Capital must 
therefore be tested by actually working with it^. 

* A short forecast of some of this work may be given here. It will be seen 
how Capital needs to be considered in regard both to the embodied aggregate of the 
benefits derivable from its use, and to the embodied aggregate of the costs of the 
efforts and of the saving needed for its production: and it will be shown how these 
two aggregates tend to balance. Thus in V. iv., which may be taken as in some 
sense a continuation of the present chapter, they will be seen balancing directly 
in the forecasts of an individual Robinson Crusoe; and — for the greater part at 
least— in terms of money in the forecasts of a modem business man. In either 
case both sides of the account must be referred to the same date of time; those 
that come after that date being “ discoimted back to it; and those that come 
before being “accumulated” up to it. 

A similar balancing in regard to the benefits and the costs of capital at large 
will be found to be a chief comer stone of social economy: although it is true 
that in consequence of the unequal distribution of wealth, accounts cannot be 
made up from the social point of view with that clearness of outline that is attain- 
able in the case of an individual, whether a Robinson Crusoe, or a modem business 
man. 

In every part of our discussion of the causes that govern the accumulation and 
the application of productive resources, it will appear that there is no universal rule 
that the use of roundabout methods of production is more efficient than direct 
methods; that there are some conditions under which the investment of effort 
in obtaining machinery and in making costly provision against future wants is 
economical in the long run, and others in which it is not: and that capital is 
accumulated in proportion to the prospectiveness of man on the one hand, and 
on the other to the absorption of capital by those roundabout methods, which 
are sufficiently productive to remunerate their adoption. See especially IV. vii. 8; 
V. IV,; VI. I. 8; and VI. VL 1. 

The broader forces, that govern the production of capital in general and its con- 
tribution to the national income, are discussed in IV. vn. n.-n. : the imperfect 
adjustments of the money measures of benefits and costs to their real volume are 
discussed chiefly in III. m.-v.; IV. vn.; and VI. m.-vni.; the resulting share in 
the total product of labour and capital, aided by natural resources, which goes 
to capital, is discussed chiefly in VI. i. n. vT.-vm. n. xn. 

Some of the chief incidents in the history of the definitions of Capital are 
given in Appendix E. 



BOOK III. 

ON WANTS AND THEIE SATISFACTION. 

CHAPTER I. 

INTEODUCTORY. 

§1. The older definitions of economics described it as iii, i, i. 
the science which is concerned with the production, the The 
distribution, the exchange, and the consumption of wealth, th? 
Later experience has shown that the problems of distribution 
and exchange are so closely connected, that it is doubtful sta^ 
whether anything is to be gained by the attempt to keep remainder 
them separate. There is however a good deal of general volume, 
reasoning with regard to the relation of demand and supply 
which is required as a basis for the practical problems of 
value, and which acts as an underlying backbone, giving unity 
and consistency to the main body of economic reasoning. 

Its very breadth and generality mark it off from the more 
concrete problems of distributioil and exchange to which it 
is subservient; and therefore it is put together in Book V. 
on “The General Theory of Demand and Supply’’ which 
prepares the way for “Distribution and Exchange, or Value.” 

But first comes the present Book III., a study of Wants 
and their satisfaction, t.e. of demand and consumption: and 
then Book IV., a study of the agents of production, that is, 
the agents by whose means wants are satisfied, including 
man himself, the chief agent and the sole aim of production. 



84 


III, I, 2. 


Several 
causes are 
bringing 
into 

promin- 
ence the 
study of 
consump- 
tion. 


The first 
cause. 


The second 
cause. 


INTRODUCTORY 

Book IV. corresponds in general character to that discussion 
of production to which a large place has been given in nearly 
all English treatises on general economics during the last 
two generations; although its relation to the problems of 
demand and supply has not been made sufficiently clear. 

§ 2. Until recently the subject of demand or consump- 
tion has been somewhat neglected. For important as is the 
inquiry how to turn our resources to the best account, it 
is not one which lends itself, so far as the expenditure of 
private individuals is concerned, to the methods of economics. 
The common sense of a person who has had a large experience 
of life will give him more guidance in such a matter than he 
can gain from subtle economic analyses; and until recently 
economists said little on the subject, because they really had 
not much to say that was not the common property of all 
sensible people. But recently several causes have combined 
to give the subject a greater prominence in economic dis- 
cussions. 

The first of these is the growing belief that harm was 
done by Ricardo’s habit of laying disproportionate stress on 
the side of cost of production, when analysing the causes that 
determine exchange value. For although he and his chief 
followers were aware that the conditions of demand played as 
important a part as those of supply in determining value, yet 
they did not express their meaning with sufficient clearness, 
and they have been misunderstood by all but the most 
careful readers. 

Secondly, the growth of exact habits of thought in 
economics is making people more careful to state distinctly 
the premises on which they reason. This increased care is 
partly due to the application by some writers of mathe- 
matical language and mathematical habits of thought. It 
is indeed doubtful whether much has been gained by the 
use of complex mathematical formulae. But the application 
of mathematical habits of thought has been of great service; 
for it has led people to refuse to consider a problem until they 
are quite sure what the problem is; and to insist on knowing 
what is, and what is not intended to be assumed before 
proceeding further. 



THE POSITION OP THE STUDY OF WANTS IN ECONOMICS 


85 


This has in its turn compelled a more careful analysis of iii, i, 2. 
all the leading conceptions of economics, and especially of 
demand; for the mere attempt to state clearly how the 
demand for a thing is to be measured opens up new aspects 
of the main problems of economics. And though the theory 
of demand is yet in its infancy, we can already see that it 
may be possible to collect and arrange statistics of con- 
sumption in such a way as to throw light on difficult questions 
of great importance to public wellbeing. 

Lastly, the spirit of the age induces a closer attention The third 
to the question whether our increasing wealth may not be 
made to go further than it does in promoting the general 
wellbeing; and this again compels us to examine how far 
the exchange value of any element of wealth, whether in 
collective or individual use, represents accurately the addition 
which it makes to happiness and wellbeing. 

We will begin this Book with a short study of the variety We will 
of human wants, considered in their relation to human efforts 
and activities. For the progressive nature of man is one ^i^tTorTto 
whole. It is only temporarily and provisionally that we can 
with profit isolate for study the economic side of his life; 
and we ought to be careful to take together in one view the 
whole of that side. There is a special need to insist on this 
just now, because the reaction against the comparative 
neglect of the study of wants by Ricardo and his followers 
shows signs of being carried to the opposite extreme. It is 
important still to assert the great truth on which they dwelt 
somewhat too exclusively; viz. that while wants are the 
rulers of life among the lower animals, it is to changes in 
the forms of efforts and activities that we must turn when in 
search for the keynotes of the history of mankind. 



ril, n, 1. 
The 

wants of 
the savage 
are few; 


but civili- 
zation 
brings 
with it a 
desire for 
variety for 
its own 
sake. 


CHAPTER IL 

WANTS IN RELATION TO ACTIVITIES. 

§ 1. Human wants and desires are countless in number 
and very various in kind: but they are generally limited and 
capable of being satisfied. The uncivilized man indeed has 
not many more than the brute animal; but every step in his 
progress upwards increases the variety of his needs together 
with the variety in his methods of satisfying them. He 
desires not merely larger quantities of the things he has been 
accustomed to consume, but better qualities of those things; 
he desires a greater choice of things, and things that will 
satisfy new wants growing up in him. 

Thus though the brute and the savage alike have their 
preferences for choice morsels, neither of them cares much 
for variety for its own sake. As, however, man rises in 
civilization, as his mind becomes developed, and even his 
animal passions begin to associate themselves with mental 
activities, his wants become rapidly more subtle and more 
various; and in the minor details of life he begins to desire 
change for the sake of change, long before he has consciously 
escaped from the yoke of custom. The first great step in 
this direction comes with the art of making a fire: gradually 
he gets to accustom himself to many different kinds of food 
and drink cooked in many different ways; and before long 
monotony begins to become irksome to him, and he finds it 
a great hardship when accident compels him to live for a 
long time exclusively on one or two kinds of food. 



THE DESIBE FOR DISTINCnON 


87 


As a man’s riches increase, his food and drink become iii, n, 2 . 
more various and costly; but his appetite is limited byMan^ 
nature, and when his expenditure on food is extravagant it fo^foocf 
is more often to gratify the desires of hospitality and display “ 
than to indulge his own senses. 

This brings us to remark with Senior that ‘‘Strong as is but not his 
the desire for variety, it is weak compared with the desire 
for distinction: a feeling which if we consider its universality, 
and its constancy, that it affects all men and at all times, 
that it comes with us from the cradle and never leaves us 
till we go into the grave, may be pronounced to be the most 
powerful of human passions.” This great half-truth is well 
illustrated by a comparison of the desire for choice and 
various food with that for choice and various dress. 

§ 2. That need for dress which is the result of natural which is 

St chioit 

causes varies with the climate and the season of year, and a source of 
little with the nature of a person’s occupations. But in dress for c1)?Uy 
conventional wants overshadow those which are natural. 

Thus in many of the earlier stages of civilization the 
sumptuary mandates of Law and Custom have rigidly 
prescribed to the members of each caste or industrial grade, 
the style and the standard of expense up to which their dress 
must reach and beyond which they may not go ; and part of 
the substance of these mandates remains now, though subject 
to rapid change. In Scotland, for instance, in Adam Smith’s 
time many persons were allowed by custom to go abroad 
without shoes and stockings who may not do so now; and 
many may still do it in Scotland who might not in England. 

Again, in England now a well-to-do labourer is expected to 
appear on Sunday in a black coat and, in some places, in a 
silk hat; though these would have subjected him to ridicule 
but a short time ago. There is a constant increase both in 
that variety and expensiveness which custom requires as 
a minimum, and in that which it tolerates as a maximum; 
and the efforts to obtain distinction by dress are ex- 
tending theniselves throughout the lower grades of English 
society. 

But in the upper grades, though the dress of women is 
still various and costly, that of men is simple and inexpensive 



88 


WANTS IN RELATION TO ACTIVITIES 


III, II, 3, 4 


House 

room. 


Wants 

resulting 

from 

activities. 


. as compared with what it was in Europe not long ago, and 
is to-day in the East. For those men who are most truly 
distinguished on their own account, have a natural dislike 
to seem to claim attention by their dress; and they have 
set the fashion^. 

§ 3. House room satisfies the imperative need for shelter 
from the weather: but that need plays very little part in the 
effective demand for house room. For though a small but 
well-built cabin gives excellent shelter, its stifling atmosphere, 
its necessary uncleanliness, and its want of the decencies and 
the quiet of life are great evils. It is not so much that they 
cause physical discomfort as that they tend to stunt the 
faculties, and limit people’s higher activities. With every 
increase in these activities the demand for larger house room 
becomes more urgent^. 

And therefore relatively large and well-appointed house 
room is, even in the lowest social ranks, at once a ‘'necessary 
for efficiency^,” and the most convenient and obvious way of 
advancing a material claim to social distinction. And even 
in those grades in which everyone has house room sufficient 
for the higher activities of himself and his family, a yet 
further and almost unlimited increase is desired as a 
requisite for the exercise of many of the higher social 
activities. 

§ 4. It is, again, the desire for the exercise and develop- 
ment of activities, spreading through every rank of society, 
which leads not only to the pursuit of science, literature and 


‘ A woman may display wealth, but she may not display only her wealth, by 
her dress; or else she defeats her ends. She must also suggest some distinction 
of character as well as of wealth; for though her dress may owe more to her dress- 
maker than to herself, yet there is a traditional assumption that, being less busy 
than man with external affairs, she can give more time to taking thought as to her 
dress. Even imder the sway of modem fashions, to be “well dressed” — not 
“expensively dressed” — is a reasonable minor aim for those who desire to be 
distinguished for their faculties and abilities; and this will be still more the case 
if the evil dominion of the wanton vagaries of fashion should pass away. For 
to arrange costumes beautiful in themselves, various and well-adapted to their 
purposes, is an object worthy of high endeavour; it belongs to the same class, 
though not to the same rank in that class, as the painting of a good picture. 

• It is true that many active-minded working men prefer cramped lodgings in 
a town to a roomy cottage in the country; but that is beca,use they have a strong 
taste for those activities for which a country life offers little scope. 

» See Book II. ch. in. § 3. 



NEW ACTIVITIES GIVE RISE TO NEW WANTS 


89 


art for their own sake, but to the rapidly increasing iii,ii,4. 
demand for the work of those who pursue them as pro- 
fessions. Leisure is used less and less as an opportunity 
for mere stagnation; and there is a growing desire for 
those amusements, such as athletic games and travelling, 
which develop activities rather than indulge any sensuous 
craving^. 

For indeed the desire for excellence for its own sake, is Gradations 
almost as wide in its range as the lower desire for distinction, for 
Just as the desire for distinction graduates down from the excellence, 
ambition of those who may hope that their names will be in 
men’s mouths in distant lands and in distant times, to the 
hope of the country lass that the new ribbon she puts on for 
Easter may not pass unnoticed by her neighbours; so the 
desire for excellence for its own sake graduates down from 
that of a Newton, or a Stradivarius, to that of the fisherman 
who, even when no one is looking and he is not in a hurry, 
delights in handling his craft well, and in the fact that she is 
well built and responds promptly to his guidance. Desires 
of this kind exert a great influence on the supply of the 
highest faculties and the greatest inventions; and they are 
not unimportant on the side of demand. For a large part of 
the demand for the most highly skilled professional services 
and the best work of the mechanical artisan, arises from the 
delight that people have in the training of their own faculties, 
and in exercising them by aid of the most delicately adjusted 
and responsive implements. 

Speaking broadly therefore, although it is man’s wants in a 
in the earliest stages of his development that give rise tOg^^aten^w 
his activities, yet afterwards each new step upwards is to be 
regarded as the development of new activities giving rise to 
new wants, rather than of new wants giving rise to new wants, 
activities. 

We see this clearly if we look away from healthy con- 
ditions of life, where new activities are constantly being 

^ As a minor point it may be noticed that those drinks which stimulate the 
mental activities are largely displacing those which merely gratify the senses. 

The consumption of tea is increasing very fast, while that of alcohol is stationary; 
and there is in all ranks of society a diminishing demand for the grosser and more 
immediately stupefying forms of alcohol. 



90 


WANTS IN RELATION TO ACTIVinES 


III, ii, 4. 


The 

theory of 
wants can 
claim no 
supremacy 
over the 
theory of 
f'iTorts. 


developed; and watch the West Indian negro, nsiiJig his new 
freedom and wealth not to get the means of satisfying now 
wants, but in idle etagnation that is not rest; or again look 
at that rapidly lessening part of the English working classes, 
who have no ambition and no pride or delight in the growth 
of their faculties and activities, and spend an drink whatever 
surplus their wages afford over the bare necessaries of a 
squalid life. 

It is not true therefore that ‘'the Theory of Consumption 
is the scientific basis of economics^.” For much that is of 
chief interest in the science of wants, is borrowed from the 
science of efforts and activities. These two supplement 
one another; either is incomplete without the other. But 
if either, more than the other, may claim to be the inter- 
preter of the history of man, whether on the economic side 
or any other, it is the science of activities and not that of 
wants; and McCulloch indicated their true relations when, 
discussing "the progressive nature of man he said: — "The 
gratification of a want or a desire is merely a step to some 
new pursuit. In every stage of his progress he is destined 
to contrive and invent, to engage in new undertakings; 
and when these are accomplished to enter with fresh energy 
upon others.” 

From this it follows that such a discussion of demand 
as is possible at this stage of our work, must be confined 
to an elementary analysis of an almost purely formal kind. 
The higher study of consumption must come after, and not 
before, the main body of economic analysis; and, though 
it may have its beginning within the proper domain of 


^ This doctrine is laid down by Banfield, and adopted by Jevons as the key of 
his position. It is unfortunate that here as elsewhere Jevons’ delight in stating 
his case strongly has led him to a conclusion, which not only is inaccurate, 
but does mischief by implying that the older economists were more at fault 
than they really were. Banfield says “ the first proposition of the theory of con- 
sumption is that the satisfaction of every lower want in the scale creates a desire 
of a higher character.” And if this were true, the above doctrine, which he bases 
on it, would be true also. But, as Jevons points out {Theory^ 2nd Ed. p. 69), it is 
not true: and he substitutes for it the statement that the satisfaction of a lower 
want pennits a higher want to manifest itself. That is a true and indeed an 
identical proposition: but it affords no support to the claims of the Theory of 
Consumption to supremacy. 

* Political Economy j ch. n 



PROGRESSIVE ACTIVITIES 91 

economics, it cannot find its conclusion there, but must 
extend far beyond^. 

^ The formal classification of Wants is a task not without interest; but it is 
not needed for our purposes. The basis of most modem work in this direction 
is to be found in Hermann’s Staatsuoirthschafiliche Untersuchungen^ Ch. n., where 
wants are classified as “absolute and relative, higher and lower, urgent and capable 
of postponement, positive and negative, direct and indirect, general and particular, 
constant and interrupted, permanent and temporary, ordinary and extraordinary, 
present and future, individual and collective, private and public.” 

Some analysis of wants and desires is to be found in the Igreat majority of 
French and other Continental treatises on economics even of the last generation; 
but the rigid boundary which English writers have ascribed to their science 
has excluded such discussions. And it is a characteristic fact that there is no 
allusion to them in Bentham’s Manual of Political Economy^ although his profound 
analysis of them in the Principles of Morals and Legislation and in the Table of 
the Springs of Human Action has exercised a wide-spread influence. Hermami 
had studied Bentham; and on the other hand Banfield, whose lectures were 
perhaps the first ever given in an English University that owed much directly to 
German economic thought, acknowledges special obligations to Hermann. In 
England the way was prepared for Jevons’ excellent work on the theory 
of wants, by Bentham himself; by Senior, whose short remarks on the subject 
are pregnant with far-reaching hints; by Banfield, and by the Australian Hearn. 

Hearn’s Plutology or Theory of the Efforts to satisfy Hitman Wants is at once 
simple and profound: it affords an admirable example of the way in which 
detailed analysis may be applied to afford a training of a very high order for the 
young, and to give them an intelligent acquaintance with the economic conditions 
of life, without forcing upon them any particular solution of those more difficult 
problems on which they are not yet able to form an independent judgment. At 
about the same time as Jevons’ Theory appeared, Carl Menger gave a great impetus 
to the subtle and interesting studies of wants and utilities by the Austrian school of 
economists : they had already been initiated by von Thiinen, as is indicated in the 
Preface to this Volume. 



CHAPTER III. 

GRADATIONS OF CONSUMERS* DEMAND. 

Ill, III, 1 . § 1. When a trader or a manufacturer buys anything to 

The be used in production, or be sold again, his demand is based 
on his anticipations of the profits which he can derive from it. 
traded These profits depend at any time on speculative risks and on 
demand, other causes, which will need to be considered later on. But 
in the long run the price which a trader or manufacturer 
can afford to pay for a thing depends on the prices which 
consumers will pay for it, or for the things made by aid of it. 
The ultimate regulator of all demand is therefore consumers’ 
demand. And it is with that almost exclusively that we 
shall be concerned in the present Book, 
utility and Utility is taken to be correlative to Desire or Want. 

£Lro 

used as It has been already argued that desires cannot be measured 
directly, but only indirectly by the outward phenomena to 
^bich they give rise: and that in those cases with which 
p^entiai economics is chiefly concerned the measure is found in the 
tions. price which a person is willing to pay for the fulfilment or 
satisfaction of his desire. He may have desires and aspira- 
tions which are not consciously set for any satisfaction: but 
for the present we are concerned chiefly with those which 
do BO aim; and we assume that the resulting satisfaction 
corresponds in general fairly well to that which was antici- 
pated when the purchase was made^. 

* It cannot be too much insisted that to measure directly, or per sc, either 
desires or the satisfaction which results from their fulfilment is impossible, if 
not inconceivable. If we could, we should have two accounts to make up, one of 
desires, and the other of realized satisfactions. And the two might differ con- 
siderably. For, to say nothing of higher aspirations, some of those desires with 
which economics is chiefly concerned, and especially those connected with emula- 
• tion. are impulsive; many result from the force of habit; some axe morbid and 



MEASUREMENT OF GRADATIONS OP DEMAND 


93 


There is an endless variety of wants, but there is a iii, m, i. 
limit to each separate want. This familiar and fundamental The law 
tendency of human nature may be stated in the law 
satiable wants or of diminishinq vtility thus: — The total 
utility of a thing to anyone (that is, the total pleasure Total 
or other benefit it yields him) increases with every increase 
in his stock of it, but not as fast as his stock increases. If 
his stock of it increases at a uniform rate the benefit derived 
from it increases at a diminishing rate. In other words, the 
additional benefit which a person derives from a given 
increase of his stock of a thing, diminishes with every 
increase in the stock that he already has. 

That part of the thing which he is only just induced to 
purchase may be called his marginal purchase^ because he is Marginal 
on the margin of doubt whether it is worth his while to 
incur the outlay required to obtain it. And the utility of 
his marginal purchase may be called the marginal utility of Marginal 
the thing to him. Or, if instead of buying it, he makes the 
thing himself, then its marginal utility is the utility of that 
part which he thinks it only just worth his while to make. 

And thus the law just given may be worded: — 

The marginal utility of a thing to anyone diminishes 
with every increase in the amount of it he already has^. 


lead only to hurt; and many are based on expectations that are never fulfilled. 
(See above I. n. 3, 4.) Of course many satisfactions are not common pleasures, 
but belong to the development of a man’s higher nature, or to use a good old 
word, to his beatification \ and some may even partly result from self-abnegation. 
(See I. n. 1.) The two direct measurements then might differ. But as neither 
of them is possible, we fall back on the measurement which economics supplies, 
of the motive or moving force to action: and we make it serve, with all its 
faults, both for the desires which prompt activities and for the satisfaiitions 
that result from them. (Compare “Some remarks on Utility’* by Prof. Pigou 
in the Economic Journal for March, 1903.) 

' See Note I. in the Mathematical Appendix at the end of the Volume. This 
law holds a priority of position to the law of diminishing return from land; 
which however has the priority in time; since it was the first to be subjected to a 
rigid analysis of a semi-mathematical character. And if by anticipation we borrow 
some of its terms, we may say that the return of pleasure which a person gets 
from each additional dose of a commodity diminishes till at last a margin is 
reached at which it is no longer worth his while to acquire any more of it. 

The term marginal utility {Orenz-nutz) was first used in this connection by the 
Austrian Wieser. It has been adopted by Prof. Wicksteed. It corresponds to the 
term Final used by Jevons, to whom Wieser makes his acknowledgments in the 
Preface (p. zxiii. of the English edition). His list of anticipators of his doctrine is 
headed by Gossen, 1854. 



94 


III, m. 2. 

It is 
implied 
that the 
consumer’s 
character 
is un- 
changed. 


Transla- 
tion of the 
law into 
terms of 
price. 


GRADATIONS OF CONSUMERS’ DEMAND 

There is however an implicit condition in this law which 
should be made clear. It is that we do not suppose time to 
be allowed for any alteration in the character or tastes of the 
man himself. It is therefore no exception to the law that 
the more good music a man hears, the stronger is his taste 
for it likely to become; that avarice and ambition are often 
insatiable; or that the virtue of cleanliness and the vice of 
drunkenness alike grow on what they feed upon. For in 
such cases our observations range over some period of time; 
and the man is not the same at the beginning as at the end 
of it. If we take a man as he is, without allowing time for 
any change in his character, the marginal utility of a thing to 
him diminishes steadily with every increase in his supply of it^. 

§ 2. Now let us translate this law of diminishing 
utility into terms of price. Let us take an illustration from 
the case of a commodity such as tea, which is in constant 
demand and which can be purchased in small quantities. 
Suppose, for instance, that tea of a certain quality is to be 
had at 2s. per lb. A person might be willing to give 105. for 
a single pound once a year rather than go without it alto- 
gether; while if he could have any amount of it for nothing 
he would perhaps not care to use more than 30 lbs. in the 
year. But as it is, he buys perhaps 10 lbs. in the year; that 
is to say, the difEerence between the satisfaction which he gets 
from buying 9 lbs. and 10 lbs. is enough for him to be willing 
to pay 25. for it: while the fact that he does not buy an 
eleventh pound, shows that he does not think that it would 


^ It may be noticed here, though the fact is of but little pcactical importance, 
that a small quantity of a commodity may be insufficient to meet a certain special 
want; and then there will be a more than proportionate increase of pleasure when 
the consumer gets enough of it to enable him to attain the desired end. Thus, 
for instance, anyone would derive less pleasure in proportion from ten pieces of 
wall paper than from twelve, if the latter would, and the former would not, cover 
the whole of the walls of his room. Or again a very short concert or a holiday 
may fail of its purpose of soothing and recreating: and one of double length 
might be of more than double total utility. This case corresponds to the fact, 
which we shall have to study in connection with the tendency to diminishing 
return, that the capital and labour already applied to any piece of land may be so 
inadequate for the development of its full powers, that some further expenditure on 
it even with the existing arts of agriculture would give a more than proportionate 
return; and in the fact that an improvement in the arts of agriculture may resist 
that tendency, we shall find an antdogy to the condition just mentioned in the text 
as implied in the law of diminishing utility. 



DiBMAND OF AN INDIVIDUAL 


95 


be worth an extra 2^. to him. That is, 2s. a fjound measnrbs iii, m, 3, 
the utility to him of the tea which lies at the margin or 
terminus or end of his purchases; it measures the marginal 
utility to him. If the price which he is just willing to pay 
for any pound be called his demand 'price^ then 2;?. is his price, 
marginal demand price. And our law may be worded : — 

The larger the amount of a thing that a person has the 
less, other things being equal {i,e. the purchasing power of 
money, and the amount of money at his command being 
equal), will be the price which he will pay for a little more 
of it: or in other words his marginal demand price for it 
diminishes. 

His demand becomes efficient, only when the price which 
he is willing to offer reaches that at which others are willing 
to sell. 

This last sentence reminds us that we have as yet taken 
no account of changes in the marginal utility of money, or 
general purchasing power. At one and the same time, a 
person’s material resources being unchanged, the marginal 
utility of money to him is a fixed quantity, so that the 
prices he is just willing to pay for two commodities are to 
one another in the same ratio as the utility of those two 
commodities. 

§ 3. A greater utility will be required to induce him to The 
buy a thing if he is poor than if he is rich. We have seen Iltthty of 
how the clerk with £100 a year will walk to business in agieatwlor 
heavier rain than the clerk with £300 a year^. But although 
the utility, or the benefit, that is measured in the poorer rich, 
man’s mind by twopence is greater than that measured by it 
in the richer man’s mind; yet if the richer man rides a 
hundred times in the year and the poorer man twenty times, 
then the utility of the hundredth ride which the richer man 
is only just induced to take is measured to him by twopence; 
and the utility of the twentieth ride which the poorer man is 
only just induced to take is measured to him by twopence. 

For each of them the marginal utility is measured by two- 
pence; but this marginal utility is greater in the case of the 
poorer man than in that of the richer. 

^ See I. n. 2. 



96 


GRADATIONS OF CONSUMERS* DEMAND 


III, III, 4. 


A more 
definite 
expression 
for the 
demand 
of an 

individual. 


In other words, the richer a man becomes the less is the 
marginal utility of money to him; every increase in his 
resources increases the price which he is willing to pay for 
any given benefit. And in the same way every diminution 
of his resources increases the marginal utility of money to 
him, and diminishes the price that he is willing to pay for 
any benefit^. 

§ 4. To obtain complete knowledge of demand for 
anything, we should have to ascertain how much of it he 
would be willing to purchase at each of the prices at which 
it is likely to be offered ; and the circumstance of his demand 
for, say, tea can be best expressed by a list of the prices 
which he is willing to pay; that is, by his several demand 
prices for different amounts of it. (This list may be called 
his demand schedule.) 

Thus for instance we may find that he would buy 


6 lbs. at 60d. per lb. 

10 lbs. at 2id. 

7 

» 40 

11 

,, 21 

8 

» 33 „ 

12 

„ 19 

9 

„ 28 „ 

13 

„ 17 


If corresponding prices were filled in for all interme- 
diate amounts we should have an exact statement of his 
demand^. We cannot express a person’s demand for a thing 

^ See Note II. in the Mathematical Appendix. 

* Such a demand schedule may be translated, on a plan now coming into 
familiar use, into a curve that may be called his demand curve. Let Ox and Oy 
be drawn the one horizontally, the other vertically. Let an inch measured along 
Ox represent 10 lbs. of tea, and an inch measured along Oy represent 40d 


tenths of 

fortieths of 

an inch. 

an inch. 

take Omi=6, and draw WiPi*=50 

Owf — 7 ,, 

„ mgPa^40 

Om^=S „ 

,, 77l8Pj = 33 

Om^=9 „ 

„ mtP4=28 

Ow5=in „ 

n ^6^6=24 

Omg>=ll „ 

„ w«p,=*21 

Owi7=12 ,, 

„ nirPr^lQ 


„ maP8=17 


D 



tni being on Ox and miPi being drawn vertically from and so for the others. 



DEMAND OP AN INDIVIDUAL 


97 


by the “amount he is willing to buy,” or by the “intensity iii, m, 4. 
of his eagerness to buy a certain amount,” without reference The mean- 
to the prices at which he would buy that amount and other 
amounts. We can represent it exactly only by lists of the 
prices at which he is willing to buy different amounts^. 

When we say that a person’s demand for anything 
increases, we mean that he wiU buy more of it than he would 
before at the same price, and that he will buy as much of 
it as before at a higher price. A general increase in his 
demand is an increase throughout the whole list of prices 
at which he is willing to purchase different amounts of it, 
and not merely that he is willing to buy more of it at the 
current prices^. 

Then points on his demand curve for tea; or as we may say 

demand points. If we could find demand points in the same manner for every 
possible quantity of tea, we should get the whole continuous curre DD* as shown 
in the figure. This accoimt of the demand schedule and curv’e is provisional; 
several difficulties connected with it are deferred to chapter v. 

‘ Thus Mill says that we must “mean by the word demand, the quantity 
demanded, and remember that this is not a fixed quantity, but in general varies 
according to the value. {Principles^ III. ii. 4.) This account is scientific in 
substance; but it is not clearly expressed and it has been much misunderstood. 

Caimes prefers to represent “demand as the desire for commodities and services, 
seeking its end by an offer of general purchasing power, and supply as the 
desire for general purchasing power, seeking its end by an offer of specific com- 
modities or services.” He does this in order that he may be able to speak of a 
ratio, or equality, of demand and supply. But the quantities of two desires on 
the part of two different persons cannot be compared directly; their measures may 
be compared, but not they themselves. And in fact Caimes is himself driven to 
speak of supply as “limited by the quantity of specific commodities offered for 
sale, and demand by the quantity of purchasing power offered for their purchase.” 

But sellers have not a fixed quantity of commodities which they offer for sale 
unconditionally at whatever price they can get: buyers have not a fixed quantity 
of purchasing power which they are ready to spend on the specific commodities, 
however much they pay for them. Account must then be taken in either case 
of the relation between quantity and price, in order to complete Caimes* account, 
and when this is done it is brought back to the lines followed by Mill. He 
says, indeed, that “Demand, as defined by Mill, is to be understood as measured, 
not, as my definition would require, by the quantity of purchasing power offered 
in support of the desire for commodities, but by the quantity of commodities for 
which such purchasing power is offered.** It is true that there is a great difference 
between the statements, “I will buy twelve eggs,** and “I will buy a shilling’s 
worth of eggs.** But there is no substantive difference between the statement, 

“I will buy twelve eggs at a penny each, but only six at three halfpence each,” 
and the statement, “I will spend a shilling on eggs at a penny each, but if they 
cost three halfpence each I will spend ninepence on them.** But while Caimes* 
account when comptleted becomes substantially the same as Mill’s, its present form 
is even more misleading. (See an article by the present writer on MiWs Theory 
of Value in the Fortnightly Review for April, 1876.) 

* We may sometimes find it convenient to speak of this as a raising of his 

4 


M. 



98 


GRADATIONS OP CONSUMERS* DEMAND 


III, m, 6. 

Transition 
to the 
demand of 
a group of 
persons, or 
market. 

The de- 
msind on 
the part 
of an^ 
individual 
for some 
things 
is discon- 
tinuous. 


But the 
aggregate 
demand of 
many 
persons 
shows a f al] 
of demand 
price for 
every in- 
crease in 
quantity. 


§ 5 . So far we have looked at the demand of a single 
individual. And in the particular case of such a thing as tea, 
the demand of a single person is fairly representative of the 
general demand of a whole market: for the demand for tea 
is a constant one; and, since it can be purchased in small 
quantities, every variation in its price is likely to afiect the 
amount which he will buy. But even among those things 
which are in constant use, there are many for which the 
demand on the part of any single individual cannot vary 
continuously with every small change in price, but can move 
only by great leaps. For instance, a small fall in the price of 
hats or watches will not affect the action of every one; but 
it will induce a few persons, who were in doubt whether or 
not to get a new hat or a new watch, to decide in favour of 
doing so. 

There are many classes of things the need for which 
on the part of any individual is inconstant, fitful, and 
irregular. There can be no list of individual demand prices 
for wedding-cakes, or the services of an expert surgeon. 
But the economist has little concern with particular inci- 
dents in the lives of individuals. He studies rather “the 
course of action that may be expected under certain condi- 
tions from the members of an industrial group,*’ in so far as 
the motives of that action are measurable by a money price; 
and in these broad results the variety and the fickleness of 
individual action are merged in the comparatively regular 
aggregate of the action of many. 

In large markets, then — where rich and poor, old and 
young, men and women, persons of all varieties of tastes, 
temperaments and occupations are mingled together, — the 
I peculiarities in the wants of individuals will compensate 
one another in a comparatively regular gradation of total 
demand. Every fall, however slight in the price of a com- 
modity in general use, will, other things being equal, increase 
the total sales of it; just as an unhealthy autumn increases 
the mortality of a large town, though many persons are 

demand schedvle. Geometrically it is represented by raising his demand curre, 
or, what comes to the same thing, moving it to the right, with peiiiaps some 
modification of its shape. 



TEANSITION TO MARKET DEMAND 


99 


uninjured by it. And therefore if we had the requisite know- iii, m, 5. 
ledge, we could make a list of prices at which each amount of 
it could find purchasers in a given place during, say, a year. 

The total demand in the place for, say, tea, is the sum of 
the demands of all the individuals there. Some will be 
richer and some poorer than the individual consumer whose 
demand we have just written down; some will have a 
greater and others a smaller liking for tea ■ than he has. 

Let us suppose that there are in the place a million pur- 
chasers of tea, and that their average consumption is equal 
to his at each several price. Then the demand of that place 
is represented by the same list of prices as before, if we write 
a million pounds of tea instead of one pound^. 

There is then one general law of demand: — The greater the The 
amount to be sold, the smaller must be the price at which 
it is offered in order that it may find purchasers; or, in other 
words, the amount demanded increases with a fall in price, and 
diminishes with a rise in price. There will not be any uniform 
relation between the fall in price and the increase of demand. 

A fall of one-tenth in the price may increase the sales by a 
twentieth or by a quarter, or it may double them. But as the 
numbers in the left-hand column of the demand schedule in- 
crease, those in the right-hand column will always diminish^. 

1 The demand is represented by the same curve as before, only an inch 
measured along Ox now represents ten million pounds instead of ten pounds. And 
a formal definition of the demand curve for a 
market may be given thus : — The demand curve for 
any commodity in a market diuing any given unit of 
time is the locus of demand points for it. That is to 
say, it is a cmve such that if from any point P on it, 
a straight line PM be drawn perpendicular to Oar, 

PM represents the price at which purchasers will be 
forthcoming for an amount of the commodity repre- 
sented by OM. 

2 That is, if a point moves along the curve away 
from Oy it will constantly approach Ox, Therefore 

if a straight line PT be drawn touching the curve at P and meeting Ox in T, the 
angle PTx is an obtuse angle. It will be found convenient to have a short way of 
expressing this fact; which may be done by saying that PT is inclined negatively. 

Thus the one universal rule to which the demand curve conforms is that it is 
inclined negatively throughout the whole of its length. 

It will of course be understood that ** the law of demand does not apply to the 
demand in a campaign between groups of speculators. A group, which desires to un- 
load a great quantity of a thing on to the market, often begins by bu 3 ring some of it 
openly. When It has thus raised the price of the thing, it arranges to sell a great deal 
quietly, and through unaccustomed channels. See an article by Professor Taussig in 
the Quarterly Journal of Beonomict (May, 1921, p. 402). 



Fig. (2); 



100 


GRADATIONS OF CONSUMERS* DEMAND 


III, III, 6. 


The in- 
fluence on 
demand of 
the growth 
of a riral 
com- 
modity. 


Relation 
of the 
following 
to the 
preceding 
chapter. 


The price will measure the marginal utility of the com- 
modity to each purchaser individually: we cannot speak of 
price as measuring marginal utility in general, because the 
wants and circumstances of different people are different. 

§ 6. The demand prices in our list are those at which 
various quantities of a thing can be sold in a market during 
a given time and under given conditions. If the conditions 
vary in any respect the prices will probably require to be 
changed; and this has constantly to be done when the desire 
for anything is materially altered by a variation of custom, 
or by a cheapening of the supply of a rival commodity, or by 
the invention of a new one. For instance, the list of demand 
prices for tea is drawn out on the assumption that the price 
of coffee is known; but a failure of the coffee harvest would 
raise the prices for tea. The demand for gas is liable to be 
reduced by an improvement in electric lighting; and in the 
same way a fall in the price of a particular kind of tea 
may cause it to be substituted for an inferior but cheaper 
variety^. 

Our next step will be to consider the general character of 
demand in the cases of some important commodities ready 
for immediate consumption. We shall thus be continuing 
the inquiry made in the preceding chapter as to the 

‘ It is even conceivable, though not probable, that a simultaneous and pro- 
portionate fall in the price of all teas may diminish the demand for some particular 
kind of it; if it happens that those whom the increased cheapness of tea leads to 
substitute a superior kind for it are more numerous than those who are led to take 
it in the place of an inferior kind. The question where the lines of division 
between different commodities should be drawn must be settled by convenience 
of the particular discussion. For some purposes it may be best to regard Chinese 
and Indian teas, or even Souchong and Pekoe teas, as different commodities; and 
to have a separate demand schedule for each of them. While for other purposes 
it may be best to group together commodities as distinct as beef and mutton, or 
even as tea and coffee, and to have a single list to represent the demand for 
the two combined; but in such a case of course some convention must be made 
as to the number of ounces of tea which are taken as equivalent to a pound of 
coffee. 

Again, a commodity may be simultaneously demanded for several uses (for 
instance there may be a “composite demand** for leather for making shoes and 
portmanteaus); the demand for a thing may be conditional on there being a supply 
of some other thing without which it would not be of much service (thus there 
may be a “joint demand** for raw cotton and cotton-spinners* labour). Again, 
the demand for a commodity on the part of dealers who buy it only with the 
purpose of selling it again, though governed by the demand of the ultimate con- 
sumers in the background, has some peculiarities of its own. But aU such points 
may best be discussed at a later stage. 



MARKET DEMAND 


101 


variety and satiability of wants; but we shall be treating 6. 

it from a rather different point of view, viz, that of price- 
statistics^. 

^ A great change in the manner of economic thought has been brought about 
during the present generation by the general adoption of semi-mathematical 
language for expressing the relation between small increments of a commodity on 
the one hand, and on the other hand small increments in the aggregate price that 
will be paid for it: and by formally describing these small increments of price 
as measuring corresponding small increments of pleasure. The former, and by 
far the more important, step was taken by Cournot {Recherches sur les Principes 
Mathhnatiques de la Thiorie des Richesses, 1838); the latter by Dupuit {De la 
Mesure d^utiliU des travaux puUics in the Annales des Fonts et Chaussies^ 1844), 
and by Gossen {Entwickelung der Gesetze des menschlichen VerkehrSj 1854). But 
their work was forgotten; part of it was done over again, developed and published 
almost simultaneously by Jevons and by Carl Monger in 1871, and by Walras 
a little later. Jevons almost at once arrested public attention by his brilliant 
lucidity and interesting style. He applied the new name final utility so in- 
geniously as to enable people who knew nothing of mathematical science to get 
clear ideas of the general relations between the small increments of two things 
that are gradually changing in causal connection with one another. His success 
was aided even by his faults. For under the honest belief that Ricardo and his 
followers had rendered their account of the causes that determine value hopelessly 
wrong by omitting to lay stress on the law of satiable wants, he led many to think 
he was correcting great errors; whereas he was really only adding very important 
explanations. He did excellent work in insisting on a fact which is none the less 
important, because his predecessors, and even Cournot, thought it too obvious to 
be explicitly mentioned, viz, that the diminution in the amount of a thing de- 
manded in a market indicates a diminution in the intensity of the desire for it on 
the part of individual consumers, whose wants are becoming satiated. But he has 
led many of his readers into a confusion between the provinces of Hedonics and 
Economics, by exaggerating the applications of bis favourite phrases, and speaking 
{Theory^ 2nd Edn. p. 105) without qualification of the price of a thing as measuring 
its final utility not only to an individual, which it can do, but also to *'a trading 
body,” which it cannot do. These points are developed later on in Appendix I. 
on Ricardo’s Theory of value. It should be added that Prof. Seligman has shown 
{Economic Journal^ 1903, pp. 350-363) that a long-forgotten Lecture, delivered 
by Prof. W. F. Lloyd at Oxford in 1833, anticipated many of the central ideas of 
the present doctrine of utility. 

An excellent bibliography of Mathematical Economics is given by Prof. Fisher 
as an appendix to Bacon’s translation of Cournot’s Researches^ to which the reader 
may be referred for a more detailed account of the earlier mathematical writings 
on economics, as well as of those by Edgeworth, Pareto, Wicksteed, Auspitz, 

Lieben and others. Pantaleoni’s Pure Economics^ amid much excellent matter, 
makes generally accessible for the first time the profoundly original and vigorous, 
if somewhat abstract, reasonings of Gossen. 



CHAPTER IV. 


m, IT, I. 

Definition 
of elas- 
ticity of 
demand. 


THE ELASTICITY OF WANTS. 

§ 1. We have seen that the only universal law as to 
a personas desire for a commodity is that it diminishes, other 
things being equal, with every increase in his supply of that 
commodity. But this diminution may be slow or rapid. If 
it is slow the price that he will give for the commodity will 
not fall much in consequence of a considerable increase in 
his supply of it; and a small fall in price will cause a com- 
paratively large increase in his purchases. But if it is rapid, 
a small fall in price will cause only a very small increase in 
his purchases. In the former case his willingness to purchase 
the thing stretches itself out a great deal under the action 
of a small inducement: the elasticity of his wants, we may 
say, is great. In the latter case the extra inducement given 
by the fall in price causes hardly any extension of his desire 
to purchase: the elasticity of his demand is small. If a fall 
in price from say 16d. to 15d. per lb. of tea would much 
increase his purchases, then a rise in price from 15d. to 16d. 
would much diminish them. That is, when the demand is 
elastic for a fall in price, it is elastic also for a rise. 

And as with the demand of one person so with that of 
a whole market. And we may say generally: — The elasticity 
(or responsiveness) of demand in a market is great or small 
according as the amoimt demanded increases much or little 
for a given fall in price, and diminishes much or little for 
a given rise in price^. 

^ We may say that the elasticity of demand is one, if a small fall in price will 
cause an equal proportionate increase in the amount 
demanded: or as we may say roughly, if a fall of 
one per cent, in price will increase the sales by one 
per cent. ; that it is two or a half, if a fall of one per 
cent, in price makes an increase of two or one half 
per cent, respectively in the amount demanded; 
and so on. (This statement is rough; because 96 
does not bear exactly the same proportion to 1(X) 
that 1(X) does to 102.) The elasticity of demand can 
be best traced in the demand curve with the aid of 
the following rule. Let a straight line touching the 




ELASTICITY OR RESPONSIVENESS OP MARKET DEMAND 


103 


§2. The price which is so high relatively to the poor 
man as to be almost prohibitive, may be scarcely felt by the 
rich; the poor man, for instance, never tastes wine, but the 
very rich man may drink as much of it as he has a fancy 
for, without giving himself a thought of its cost. We shall 
therefore get the clearest notion of the law of the elasticity 
of demand by considering one class of society at a time. 
Of course there are many degrees of richness among the 
rich, and of poverty among the poor; but for the present 
we may neglect these minor subdivisions. 

When the price of a thing is very high relatively to any 
class, they will buy but little of it; and in some cases 
custom and habit may prevent them from using it freely 
even after its price has fallen a good deal. It may still 
remain set apart for a limited number of special occasions, or 
for use in extreme illness, etc. But such cases, though not 
infrequent, do not form the general rule ; and anyhow as soon 
as it has been talcen into common use, any considerable fall 
in its price causes a great increase in the demand for it. 
The elasticity of demand is great for high prices, and great, 
or at least considerable, for medium prices; but it declines 
as the price falls; and gradually fades away if the fall goes 
so far that satiety level is reached. 

This rule appears to hold with regard to nearly all com- 
modities and with regard to the demand of every class; save 
only that the level at which high prices end and low 
prices begin, is different for different classes; and so again 
is the level at which low prices end and very low prices 
begin. There are however many varieties in detail; arising 
chiefly from the fact that there are some commodities with 

curve at any point P meet Ox m T and Oy in t, then the measure of the elasticity 
at the point P is the ratio of FT to Pt. 

U PT were twice Pty a fall of 1 per cent, in price would cause an increase of 
2 per cent., in the amount demanded; the elasticity of demand would bo two. 
If PT were one-third of Pf, a fall of 1 per cent, in price would cause an increase 
of ^ per cent, in the amount demanded; the elasticity of demand would be one- 
third; and so on. Another way of looking at the same result is this: — the elasticity 
at the point P is measured by the ratio of PT to Pf, that is of MT to MO (PM being 
drawn perpendicular to Om); a^d therefore the elasticity is equal to one when the 
angle TPM is equal to the angle 0PM; and it always increases when the angle TPM 
increases rdatively to the angle 0PM, and vice versd. See Note III. in the Mathe- 
matical Appendix. 


Ill, IV, 2. 

The gene- 
ral law of 
variation 
of the 
elasticity 
of demand, 
and its 
eonsequmt 
responsive- 
ness to 
changes 
of price. 



104 


THE ELASTICITY OP WANTS 


III, IV, 2. which people are easily satiated, and others — chiefly things 
used for display — for which their desire is almost unlimited. 
For the latter the elasticity of demand remains considerable, 
however low the price may fall, while for the former the 
demand loses nearly all its elasticity as soon as a low price 
has once been reached^. 


^ Let us illustrate by the case of the demand for, say, green peas in a town in 
which all vegetables are y 
bought and sold in one 
market. Early in the sea- 
son perhaps 100 lb. a day 
will be brought to market j 
and sold at Is. per lb., later 
on 500 lb. will be brought 
and sold at 6^., later on 

1.000 lb. at Ad.^ later still 

5.000 at 2i., and later still 

10.000 at lid. Thus de- 
mand is represented in fig. 

(4), an inch along Ox repre- 
senting 5,000 lbs. and an o 
inch along Oy represent- S S 5 

ing lOd. Then a curve through Pi7>*...ps, found as shown above, will be the total 
demand curve. But this total demand will be made up of the demands of the rich, 
the middle class and the poor. The amounts that they will severally demand may 
perhaps be represented by the following schedules: — 


At price in Number of lbs. bought by 


pence per lb. 

rich 

middle class 

poor 

Total 

12 

100 

0 

0 

f 100 

6 

300 

200 

0 

500 

4 

600 

400 

100 

1,000 

2 

800 

2,500 

1,700 

5,000 

H 

1,000 

4,000 

5,000 

10,000 



Fig. (6). Fig. (6). Fig. (7). 



K » 


These schedules are translated into curves figs. (5), (6), (7), showing the demands 
of the rich, the middle class and the poor represented on the same scale as fig. (4). 
Thus for instance Afl, BK and CL each represents a price of 2d, and is *2 inches 
in length; in. representing 800 lb., OZ*=-5 in. representing 2,500 lb. 

and OL«»’34 in. representing 1,700 lb., while OH -\-OK ArOL*^\ inch, i.e.=sOw| 
in fig. (4) as they should do. This may serve as an example of the way in which 



ILLUSTRATIONS 


108 


§ 3. There are some things the current prices of which iii, iv, 3. 
in this country are very low relatively even to the poorer lUustr^ 
classes; such are for instance salt, and many kinds of savours 
and flavours, and also cheap medicines. It is doubtful 
whether any fall in price would induce a considerable in- 
crease in the consumption of these. commo- 

The current prices of meat, milk and butter, wool, 
tobacco, imported fruits, and of ordinary medical attend- 
ance, are such that every variation in price makes a great 
change in the consumption of them by the working classes, 
and the lower half of the middle classes; but the rich would 
not much increase their own personal consumption of them 
however cheaply they were to be had. In other words, the 
direct demand for these commodities is very elastic on the 
part of the working and lower middle classes, though not on 
the part of the rich. But the working class is so numerous 
that their consumption of such things as are well within their 
reach is much greater than that of the rich ; and therefore 
the aggregate demand for all things of the kind is very 
elastic. A little while ago sugar belonged to this group 
of commodities: but its price in England has now fallen so 
far as to be low relatively even to the working classes, and 
the demand for it is therefore not elastic^. 

The current prices of wall-fruit, of the better kinds of fish, 
and other moderately expensive luxuries are such as to make 
the consumption of them by the middle class increase much 
with every fall in price; in other words, the middle class 
demand for them is very elastic: while the demand on the 

several partial demand curves, drawn to the same scale, can be superimposed 
horizontally on one another to make the total demand curve representing the 
aggregate of the partial demand. 

^ We must however remember that the character of the demand schedule for 
any commodity depends in a great measure on whether the prices of its rivals are 
taken to be fixed or to alter with it. If we separated the demand for beef from 
that for mutton, and supposed the price of mutton to be held fixed while that for 
beef was raised, then the demand for beef would become extremely elastic. For 
any slight fall in the price of beef would cause it to be used largely in the place of 
mutton and thus lead to a very great increase of its consumption: while on the 
other hand even a small rise in price would cause many people to eat mutton 
to the almost entire exclusion of beef. But the demand schedule for all kinds of 
fresh meat taken together, their prices being supposed to retain always about the 
same relation to one another, and to be not very difierent from those now prevail- 
ing in England, shows only a moderate elasticity. And similar remarks apply to 
beet-root and cane-sugar. Compare the note on p. 100. 



106 


III, IV, 4. 


The de- 
mand for 
neces- 
saries. 


THE ELASTICITY OF WANTS 

part of the rich and on the part of the working class is much 
less elastic, the former because it is already nearly satiated, 
the latter because the price is still too high. 

The current prices of such things as rare wines, fruit out 
of season, highly skilled medical and legal assistance, are so 
high that there is but little demand for them except from 
the rich: but what demand there is, often has considerable 
elasticity. Part of the demand for the more expensive kinds 
of food is really a demand for the means of obtaining social 
distinction, and is almost insatiable^. 

§ 4 . The case of necessaries is exceptional. When the 
price of wheat is very high, and again when it is very low, 
the demand has very little elasticity: at all events if we 
assume that wheat, even when scarce, is the cheapest food 
for man; and that, even when most plentiful, it is not con- 
sumed in any other way. We know that a fall in the price 
of the quartern loaf from 6c?. to 4c?. has scarcely any effect in 
increasing the consumption of bread. With regard to the 
other end of the scale it is more difficult to speak with cer- 
tainty, because there has been no approach to a scarcity in 
England since the repeal of the corn laws. But, availing 
ourselves of the experience of a less happy time, we may 
suppose that deficits in the supply of 1, 2, 3, 4, or 5 tenths 
would cause a rise in price of 3, 8, 16, 28, or 45 tenths 
respectively 2. Much greater variations in prices indeed than 
this have not been uncommon. Thus wheat sold in London 

‘ See above ch. n. § 1. In April 1894, for instance, six plovers^ eggs, the first 
of the season, were sold in London at 10s. 6d. each. The following day there were 
more, and the price fell to 5s.; the next day to 3s. each; and a week later to 4d. 

• This estimate is commonly attributed to Gregory King. Its bearing on the 
law of demand is admirably discussed by Lord Lauderdale {Inquiry ^ pp. 

It is represented in fig. (8) by the curve DD\ 
the point A corresponding to the ordinary 
price. If we take accoimt of the fact that 
where the price of wheat is very low, it may 
be used, as it was for instance in 1834, for 
feeding cattle and sheep and pigs and for 
brewing and distilling, the lower part of the 
curve would take a shape somewhat like that 
of the dotted line in the figure. And if we 
assume that when the price is very high, 
cheaper substitutes can be got for it, the 
upper part of the curve would take a shape 
similar to that of the upper dotted line. 



o 


e 



CAUSES OP Varying ei^asticity 


107 


for ten shillings a bushel in 1336, but in the following year it m, iv, 4. 
sold for ten pence^. 

There may be even more violent changes than this 
the price of a thing which is not necessary, if it is perishable part of the 
and the demand for it is inelastic: thus fish may be very 
dear one day, and sold for manure two or three days later. 

Water is one of the few things the consumption of which 
we are able to observe at all prices, from the very highest 
down to nothing at all. At moderate prices the demand for 
it is very elastic. But the uses to which it can be put are 
capable of being completely filled: and as its price sinks 
towards zero the demand for it loses its elasticity. Nearly 
the same may be said of salt. Its price in England is so low 
that the demand for it as an article of food is very inelastic: 
but in India the price is comparatively high and the demand 
is comparatively elastic. 

The price of house-room, on the other hand, has never 
fallen very low except when a locality is being deserted by 
its inhabitants. Where the condition of society is healthy, 
and there is no check to general prosperity, there seems 
always to be an elastic demand for house-room, on account 
both of the real conveniences and the social distinction 
which it affords. The desire for those kinds of clothing 
which are not used for the purpose of display, is satiable: 
when their price is low the demand for them has scarcely 
any elasticity. 

The demand for things of a higher quality depends much influence 
on sensibility: some people care little for a refined fiavour biiity and 
in their wine provided they can get plenty of it: others 
crave a high quality, but are easily satiated. In the ordinary distastes, 
working class districts the inferior and the better joints are 
sold at nearly the same price: but some well-paid artisans 
in the north of England have developed a liking for the 
best meat, and will pay for it nearly as high a price as can 
be got in the west end of London, where the price is kept 
artificially high by the necessity of sending the inferior 
joints away for sale elsewhere. Use also gives rise to 

* Chronieon Preciosvm (a.d. 1745) says that the price of wheat in London was 
as low as 2 j. a quarter in 1336 : and that at Leicester it sold at 40s. on a Saturday, 

%nd at 14 j. on the following Friday. 



108 


THE ELASTICITY OF WANTS 


III, IV, 4. 


Influence 
of variety 
of uses. 


acquired distastes as well as to acquired tastes. Illustrations 
whicli make a book attractive to many readers, will repel 
those whose familiarity with better work has rendered them 
fastidious. A person of high musical sensibility in a large 
town will avoid bad concerts: though he might go to them 
gladly if he lived in a small town, where no good concerts 
are to be heard, because there are not enough persons willing 
to pay the high price required to cover their expenses. The 
effective demand for first-rate music is elastic only in large 
towns; for second-rate music it is elastic both in large and 
small towns. 

Generally speaking those things have the most elastic 
demand, which are capable of being applied to many different 
uses. Water for instance is needed first as food, then for 
cooking, then for washing of various kinds and so on. When 
there is no special drought, but water is sold by the pailful, 
the price may be low enough to enable even the poorer 
classes to drink as much of it as they are inclined, while for 
cooking they sometimes use the same water twice over, and 
they apply it very scantily in washing. The middle classes 
will perhaps not use any of it twice for cooking; but they 
will make a pail of water go a good deal further for washing 
purposes than if they had an unlimited supply at command. 
When water is supplied by pipes, and charged at a very low 
rate by meter, many people use as much of it even for 
washing as they feel at all inclined to do; and when the 
water is supplied not by meter but at a fixed annual charge, 
and is laid on in every place where it is wanted, the use of it 
for every purpose is carried to the full satiety limit^. 

* Thus the general demand of any one person for such a thing as water 
is the aggregate (or compound^ see V. vi. 3) of his demand for it for each use; 
in tlie same way as the demand of a group of people of different orders of 
wealth for a commodity, which is serviceable in only one use, is the aggregate of 
the demands of each member of the group. Again, just as the demand of the rich 
for peas is considerable even at a very high price, but loses all elasticity at a price 
that is stiU high relatively to the consumption of the poor; so the demand of the 
individual for water to drink is considerable even at a very high price, but loses 
all elasticity at a price that is still high relatively to his demand for it for the 
purpose of cleaning up the house. And as the aggregate of a number of demands 
on the part of different classes of people for peas retains elasticity over a larger 
range of price than will that of any one individual, so the demand of an individual 
for water for many uses retains elasticity over a laiger range of prices than his 
demand for it for any one use. Compare an article by J. B. Clark on A Universal 
Law of Economic Variation in the Harvard Journal of Economics^ VoL viii. 



DIFFICULTIES OF THE STATISTICAL STUDY 


109 


On the other hand, demand is, generally speaking, very iii, iv, 5 . 
inelastic, firstly, for absolute necessaries (as distinguished inelastic 
from conventional necessaries and necessaries for efficiency) ; 
and secondly, for some of those luxuries of the rich which do 
not absorb much of their income. 

§ 5. So far we have taken no account of the difficulties Difficulties 
of getting exact lists of demand prices, and interpreting statistical 
them correctly. The first which we have to consider arises 
from the element of time, the source of many of the greatest 
difficulties in economics. 

Thus while a list of demand prices represents the changes 
in the price at which a commodity can be sold consequent on 
changes in the amount ofiered for sale, other things being 
equal] yet other things seldom are equal in fact over 
periods of time sufficiently long for the collection of full and 
trustworthy statistics. There are always occurring disturbing 
causes whose effects are commingled with, and cannot easily 
be separated from, the effects of that particular cause which 
we desire to isolate. This difficulty is aggravated by the fact 
that in economics the full effects of a cause seldom come at 
once, but often spread themselves out after it has ceased to 
exist. 

To begin with, the purchasing power of money is con- 
tinually changing, and rendering necessary a correction of chL^ 
the results obtained on our assumption that money retains moneyj^^ 
a uniform value. This difficulty ^an however be overcome 
fairly well, since we can ascertain with tolerable accuracy 
the broader changes in the purchasing power of money. 

Next come the changes in the general prosperity and in whether 

1 1 ® 11. 1 I. 1 • permanent 

the total purchasing power at the disposal of the community or tem- 
at large. The influence of these changes is important, but^®^^* 
perhaps less so than is generally supposed. For when the 
wave of prosperity is descending, prices fall, and this increases 
the resources of those with fixed incomes at the expense of 
those whose incomes depend on the profits of business. The 
downward fluctuation of prosperity is popularly measured 
almost entirely by the conspicuous losses of this last class; 
but the statistics of the total consumption of such com- 
modities as tea, sugar, butter, wool, etc. prove that the total 



110 


III, IT, 6. 


Gradual 
changes in 
habits and 
in the 
familiarity 
with new 
things and 
new ways 
of using 
them. 


THE ELASTICITY OP WANTS 

purchasing power of the people does not meanwhile fall 
very fast. Still there is a fall, and the allowance to be made 
for it must be ascertained by comparing the prices and the 
consumption of as many things as possible. 

Next come the changes due to the gradual growth of 
population and wealth. For these an easy numerical cor- 
rection can be made when the facts are known^. 

§ 6. Next, allowance must be made for changes in fashion, 
and taste and habit^, for the opening out of new uses of a 
commodity, for the discovery or improvement or cheapening 
of other things that can be applied to the same uses with 
it. In all these cases there is great difficulty in allowing for 
the time that elapses between the economic cause and its 
effect. For time is required to enable a rise in the price 
of a commodity to exert its full influence on consumption. 
Time is required for consumers to become familiar with 
substitutes that can be used instead of it, and perhaps for 
producers to get into the habit of producing them in sufficient 
quantities. Time may be also wanted for the growth of habits 
of familiarity with the new commodities and the discovery of 
methods of economizing them. 

^ When a statistical table shows the gradual growth of the consumption of 
a commodity over a long series of years, we may want to compare the percentage 
by which it increases in different years. This can be 
done pretty easily with a little practice. But when the 
figures are expressed in the form of a statistical diagram, 
it cannot easily be done, without translating the diagram 
back into figures; and this is a cauas of the disfavour in 
which many statisticians hold the graphic method. But 
by the knowledge of one simple rule the balance can be 
turned, so far as this point goes, in favour of the graphic 
method. The rule is as follows: — Let the quantity of a 
commodity consumed (or of trade carried, or of tax levied 
etc.) be measured by horizontal lines parallel to Oxy fig. 

(9), while the corresponding yeais are in the usual manner ticked off in descending 
order at equal distances along Gy. To measure the rate of growth at any point P, 
put a ruler to touch the curve at P. Let it meet Oy in t, and let N be the point 
on Oy at the same vertical height as P: then the number of years marked off 
along Oy by the distance Nt is the inverse of the fraction by which the amount is 
increasing annually. That is, if WMs 20 years, the amount is increasing at the rate 
of 1 ^, t.e. of 5 per cent, annually; if iVf is 25 years, the increase is ^ or 4 per 
cent, annually; and so on. See a paper by the present writer in the Jubilee 
number of the Jovmal of the London Statistical Society, June 1885; also Note 
rv. in the Mathematical Appendix. 

s For illustrations of the influence of fashion see articles by Miss Foley in the 
Economic Journal, Vol m., and Miss Heather Bigg in the nineteenth Century, 
VoL xiin. 


Fig. (9). 




DIFFICULTIES OF THE STATISTICAL STUDY 


111 


For instance when wood and charcoal became dear in in,iv,6. 
England, familiarity with coal as a fuel grew slowly, fireplaces lUusT^ 
were but slowly adapted to its use, and an organized traffic 
in it did not spring up quickly even to places to which it 
could be easily carried by water: the invention of processes 
by. which it could be used as a substitute for charcoal in 
manufacture went even more slowly, and is indeed hardly 
yet complete. Again, when in recent years the price of coal 
became very high, a great stimulus was given to the invention 
of economies in its use, especially in the production of iron 
and steam; but few of these inventions bore much practical 
fruit till after the high price had passed away. Again, when 
a new tramway or suburban railway is opened, even those 
who live near the line do not get into the habit of making 
the most of its assistance at once; and a good deal more 
time elapses before many of those whose places of business 
are near one end of the line change their homes so as to live 
near the other end. Again, when petroleum first became 
plentiful few people were ready to use it freely; gradually 
petroleum and petroleum lamps have become familiar to 
all classes of society: too much influence would therefore be 
attributed to the fall in price which has occurred since then, 
if it were credited with all the increase of consumption. 

Another difficulty of the same kind arises from the fact Some 
that there are many purchases which can easily be put off can be 
for a short time, but not for a long time. This is often the pos^^o^d^ 
case with regard to clothes and other things which are worn 
out gradually, and which can be made to serve a little 
longer than usual under the pressure of high prices. For 
instance, at the beginning of the cotton famine the recorded 
consumption of cotton in England was very small. This was 
partly because retail dealers reduced their stock, but chiefly 
because people generally made shift to do as long as they 
could without buying new cotton goods. In 1864 however 
many found themselves unable to wait longer; and a good 
deal more cotton was entered for home consumption in that 
year, though the price was then much higher, than in either 
of the preceding years. For commodities of this kind then a 
sudden scarcity does not immediately raise the price fully 



112 


THE ELASTICITY OP WAHXS 


III, IT, 7. 


Imperfec- 
tions of 
statistics. 


Increase of 

dealers^ 

stocks 

mistaken 

for increase 

of con- 

mmptioD. 


up to the level, which properly corresponds to the reduced 
supply. Similarly after the great commercial depression in 
the United States in 1873 it was noticed that the boot trade 
revived before the general clothing trade; because there is a 
great deal of reserve wear in the coats and hats that are 
thrown aside in prosperous times as worn out, but not so 
much in the boots. 

§7. The above difficulties are fundamental: but there 
are others which do not lie deeper than the more or less 
inevitable faults of our statistical returns. 

We desire to obtain, if possible, a series of prices 
at which different amounts of a commodity can find 
purchasers during a given time in a market. A perfect 
market is a district, small or large, in which there are many 
buyers and many sellers all so keenly on the alert and so weH 
acquainted with one another’s affairs that the price of a com- 
modity is always practically the same for the whole of the 
district. But independently of the fact that those who buy 
for their own consumption, and not for the purposes of trade, 
are not always on the look out for every change in the market, 
there is no means of ascertaining exactly what prices are paid 
in many transactions. Again, the geographical limits of a 
market are seldom clearly drawn, except when they are 
marked out by the sea or by custom-house barriers; and no 
country has accurate statistics of commodities produced in 
it for home consumption. 

Again, there is generally some ambiguity even in such 
statistics as are to be had. They commonly show goods 
as entered for consumption as soon as they pass into the 
hands of dealers; and consequently an increase of dealers’ 
stocks cannot easily be distinguished from an increase of 
consumption. But the two are governed by different causes. 
A rise of prices tends to check consumption; but if the rise 
is expected to continue, it will probably, as has already been 
noticed, lead dealers to increase their stocks^. 


* ]n examining the effects of taxation, it is customary to compare the amounts 
entered for consumption just before and just after the imposition of the tax. But 
this is untrustworthy. For dealers anticipating the tax lay in large stocks just 
before it is imposed, and need to buy very little for some time afterwards. And 
vice versd when a tax is lowered. Again, high taaos lead to false returns. For 



STATISTICAL DIFFICULTIES 


113 


Next it is difficult to insure that the commodities referred 
to are always of the same quality. After a dry summer what 
wheat there is, is exceptionally good; and the prices for the 
next harvest year appear to be higher than they really are. 
It is possible to make allowance for this, particularly now 
that dry Californian wheat affords a standard. But it is 
almost impossible to allow properly for the changes in quality 
of many kinds of manufactured goods. This difficulty occurs 
even in the case of such a thing as tea: the substitution in 
recent years of the stronger Indian tea for the weaker Chinese 
tea has made the real increase of consumption greater than 
that which is shown by the statistics. 


Note on Statistics of Consumption. 

§ 8. General Statistics of consumption are published by many 
Governments with regard to certain classes of commodities. But 
partly for the reasons just indicated they are of very little service in 
helping us to trace either a causal connection between variations in 
prices and variations in the amounts which people will buy, or in the 
distribution of different kinds of consumption among the different 
classes of the community. 

As regards the first of these objects, viz. the discovery of the laws 
connecting variations in consumption consequent on variations in price, 
there seems much to be gained by working out a hint given by Jevons 
(Theory, pp. 11, 12) with regard to shopkeepers’ books. A shopkeeper, 
or the manager of a co-operative store, in the working man’s quarter 
of a manufacturing town has often the means of ascertaining with 
tolerable accuracy the financial position of the great body of his 
customers. He can find out how many factories are at work, and for 
how many hours in the week, and he can hear about all the important 
changes in the rate of wages: in fact he makes it his business to do 
so. And as a rule his customers are quick in finding out changes in 
the pidce of things which they commonly use. He will therefore often 
find oases in which an increased consumption of a commodity is 
brought about by a fall in its price, the cause acting quickly, and 
acting alone without any admixture of disturbing causes. Even where 

instance, the nominal importation of molasses into Boston increased fiftyfold in 
consequence of the tax being lowered by the Rockingham Ministry in 1766, from 
6<i. to Id. per gallon. But this was chiefly due to the fact that with the tax 
at Id., it was cheaper to pay the duty than to smuggle. 


Ill, TV, 8. 

Chaises of 
quality. 


Inductive 
study of 
laws of 
demand is 
difficult; 
but traders 
could 
further it 
much by 
analysing 
their own 
accounts. 



114 


NOTE ON STATISTICS OF CONSUMPTION 


III, nr, 8. disturbing causes are present, he will often be able to allow for their 
influence. For instance, he wiU know that as the winter comes on, 
the prices of butter and vegetables rise; but the cold weather makes 
people desire butter more and vegetables less than before; and therefore 
when the prices of both vegetables and butter rise towards the winter, he 
will expect a greater falling ofl of consumption in the case of vegetables 
than should properly be attributed to the rise in price taken alone, but 
a less falling off in the case of butter. If however in two neighbouring 
winters his customers have been about equally numerous, and in receipt 
of about the same rate of wages; and if in the one the price of butter 
was a good deal higher than in the other, then a comparison of his books 
for the two winters will afford a very accurate indication of the influence 
of changes in price on consumption. Shopkeepers who supply other 
classes of society must occasionally be in a position to furnish similar 
facts relating to the consumption of their customers. 

Consump- If a sufficient number of tables of demand by different sections of 
the^p^or society could be obtained, they would afford the means of estimating 

of cheap indirectly the variations in total demand that would result from extreme 

su^Mtthe variations in price, and thus attaining an end which is inaccessible by 
probable any other route. For, as a general nile, the price of a commodity 
^Ito^con- fluctuates within but narrow limits; and therefore statistics afford us 
sumption no direct means of guessing what the consumption of it would be, if 
bL^e either fivefold or a fifth part of what it actually is. But 

very dear, we know that its consumption would be confined almost entirely to the 
riph if its price were very high; and that, if its price were very low, the 
great body of its consumption would in most cases be among the work- 
ing classes. If then the present price is very high relatively to the 
middle or to the working classes, we may be able to infer from the 
laws of their demand at the present prices what would be the demand 
of the rich if the price were so raised so as to be very high relatively 
even to their means. On the other hand, if the present price is mode- 
rate relatively to the means of the rich, we may be able to infer from 
their demand what would be the demand of the working classes if the 
price were to faU to a level which is moderate relatively to their means. 
It ia only by thus piecing together fragmentary laws of demand that 
we can hope to get any approach to an accurate law relating to widely 
different prices. (That is to say, the general demand curve for a com- 
modity cannot bo drawn with confidence except in the immediate 
neighbourhood of the current price, until we are able to piece it to- 
gether out of the fragmentary demand curves of different classes of 
society. Compare the Second Section of this Chapter.) 

When some progress has been made in reducing to definite law the 
demand for commodities that are destined for immediate consumption, 
then, but not till then, will there be use in attempting a similar task 
with regard to those secondary demands which are dependent on these 
— the demands namely for the labour of artisans and others who tf,ke 



NOTE ON STATISTICS OF CONSUMPTION 


IIS 


part in the production of things for sale; and again the demand for ill, rr, 8. 
machines, factories, railway material and other instruments of produo- """ " 
tion. The demand for the work of medical men, of domestic servants 
and of all those whose services are rendered direct to the consumer is 
similar in character to the demand for commodities for immediate 
consumption, and its laws may be investigated in the same manner. 

It is a very important, but also difficult task to ascertain the Another 
proportions in which the different classes of society distribute their 
expenditure between necessaries, comforts and luxuries; between things burets of 
that provide only present pleasure, and those that build up stores of 
physical and moral strength; and lastly between those which gratify classes, 
the lower wants and those which stimulate and educate the higher 
wants. Several endeavours have been made in this direction on the 
Continent during the last fifty years; and latterly the subject has been 
investigated with increasing vigour not only there but also in America 
and in England ^ 

‘ A single table made out by the great statistician Engel for the consumption 
of the lower, middle and working classes in Saiony in 1857, may be quoted here; 
because it has acted as a guide and a standard of comparison to later inquiries. 

It is as follows: — 



Proportions of the Expenditure of the Family of— 

Itemi of Expenditure. 

1. 

Workman with an 
Income of 4GI. to 
60/. a Year. 

2. 

Workman with an 
Income of 90/. to 
120/. 

8. 

Middle-Class person 
with an Income of 
160/. to 200/. 

1. Food only 

2. Clothing 

3. Lodging 

4. Light and fuel 

5. Education 

6. Legal protection 

7. Care of health 

8. Comfort and recreation 

62-0 per cent, 
160 „ 

120 

5-0 „ 

2-0 

1-0 

1-0 

1-0 

65-0 per cent. 
18-0 „ 

120 „ 

50 

” 

2-0 „ 

20 „ 

2*5 „ 

50-0 per cent. 
18-0 

12-0 

’• 

30 „ 

3-5 „ 

Totals 

100 0 per cent. 

100-0 per cent. 

100-0 per cent. 



Working-men’s budgets have often been collected and compared. But like all 
other figures of the kind they suffer from the facts that those who will take the 
trouble to make such returns voluntarily are not average men, that those who keep 
careful accounts are not average men; and that when accounts have to be supple- 
mented by the memory, the memory is apt to be biassed by notions as to how the 
money ought to have been spent, especially when the accounts are put together 
specially for another’s eye. This border ground between the provinces of domestic 
and public economy is one in which excellent work may be done by many who are 
disinclined for more general and abstract speculations. 

Information bearing on the subject was collected long ago by Harrison, Petty, 
Cantillon (whose lost Supplement seems to have contained some workmen’s 
budgets), Arthur Young, Malthus and others. Working-men’s budgets were 
collected by Eden at the end of the last century; and there is much miscellaneous 
information on the expenditure of the working classes in subsequent Eeports of 






116 NOTE ON STATISTICS OF CONSUMPTION 

UI, IV, 8. Commissions on Poor-relief, Factories, etc. Indeed almost every year sees some 
important addition from public or private sources to our information on these 
subjects. 

It may be noted that the method of le Play’s monumental Les Ouvriers 
Europ^ens is the intensive study of all the details of the domestic life of a few 
carefully chosen families. To work it well requires a rare combination of judgment 
in selecting cases, and of insight and sympathy in interpreting them. At its best, 
it is the best of all: but in ordinary hands it is likely to suggest more 
untrustworthy general conclusions, than those obtained by the extensive method 
of collecting more rapidly very numerous observations, reducing them as far as 
possible to statistical form, and obtaining broad averages in which inaccuracies 
and idiosyncrasies may be trusted to counteract one another to some extent. 



CHAPTER V. 

CHOICE BETWEEN DIFFERENT USES OF THE SAME 
THING. IMMEDIATE AND DEFERRED USES. 


§1. The primitive housewife finding that she has a iii, v, i 
limited number of hanks of yarn from the year’s shearing, Thedi^ri- 
considers all the domestic wants for clothing and tries to ^ peraon’s 
distribute the yarn between them in such a way as to con- 

, , between 

tribute as much as possible to the family wellbeing. She the ^ati- 
will think she has failed if, when it is done, she has reason different 
to regret that she did not apply more to making, say, socks, 
and less to vests. That would mean that she had mis- 
calculated the points at which to suspend the making of 
socks and vests respectively; that she had gone too far in 
the case of vests, and not far enough in that of socks; and 
that therefore at the points at which she actually did stop, 
the utility of yarn turned into socks was greater than that 
of yarn turned into vests. But if, on the other hand, she hit 
on the right points to stop at, then she made just so many 
socks and vests that she got an equal amount of good out of 
the last bundle of yam that she applied to socks, and the last 
she applied to vests. This illustrates a general principle, 
which may be expressed thus: — 

If a person has a thing which he can put to several uses, 
he will distribute it among these uses in such a way that 
it has the same marginal utility in all. For if it had a 
greater marginal utility in one use than another, he would 



118 


CHOICE BETWEEN DIFFERENT USES 


in,v, 2. gain by taking away some of it from the second use and 
applying it to the first^. 

But a One great disadvantage of a primitive economy, in which 

there is but little free exchange, is that a person may easily 
oneTthing much of One thing, say wool, that when he has 

applied it to every possible use, its marginal utility in each 
little of use is low: and at the same time he may have so little of 
some other thing, say wood, that its marginal utility for him 
is very high. Meanwhile some of his neighbours may be in 
great need of wool, and have more wood than they can turn 
to good account. If each gives up that which has for him 
the lower utility and receives that which has the higher, each 
will gain by the exchange. But to make such an adjustment 
by barter, would be tedious and diflScult. 
a parUai difGculty of barter is indeed not so very great 

remedy, where there are but a few simple commodities each capable 
of being adapted by domestic work to several uses; the 
weaving wife and the spinster daughters adjusting rightly 
the marginal utilities of the different uses of the wool, while 
the husband and the sons do the same for the wood. 

Money § 2. But when commodities have become very numerous 

distributed and highly specialized, there is an urgent need for the free 
ha^ equal money, or general purchasing power; for that alone 

utmt^s^in applied easily in an unlimited variety of purchases, 

each use. And in a money-economy, good management is shown by so 
adjusting the margins of suspense on each line of expenditure 
that the marginal utility of a shilling's worth of goods on 
each line shall be the same. And this result each one will 
attain by constantly watching to see whether there is any- 
thing on which he is spending so much that he would gain 
by taking a little away from that line of expenditure and 
putting it on some other line. 

niustra- Thus, for instance, the clerk who is in doubt whether to 
* ‘ ride to town, or to walk and have some little extra indulgence 


> Our illustration belongs indeed properly to domestic production rather than 
to domestic consumption. But that was almost inevitable; for there are very 
few things ready for immediate consumption which are available for many 
different uses. And the doctrine of the distribution of means between different 
uses has less important and less interesting applications in the science of 
demand than in that of supply. See e.g. V. m. 8. 



PRESENT AND FUTURE BENEFITS 


119 


at his lunch, is weighing against one another the (marginal) iii, ▼, 3. 
utilities of two different modes of spending his money. And a chw” 
when an experienced housekeeper urges on a young couple 
the importance of keeping accounts carefully; a chief motive accounu. 
of the advice is that they may avoid spending impulsively a 
great deal of money on furniture and other things; for, though 
some quantity of these is really needful, yet when bought 
lavishly they do not give high (marginal) utilities in propor- 
tion to their cost. And when the young pair look over their 
year’s budget at the end of the year, and find perhaps that 
it is necessary to curtail their expenditure somewhere, they 
compare the (marginal) utilities of different items, weighing 
the loss of utility that would result from taking away a 
pound’s expenditure here, with that which they would lose 
by taking it away there: they strive to adjust their parings 
down so that the aggregate loss of utility may be a minimum, 
and the aggregate of utility that remains to them may be a 
maximum^. 

§ 3. The different uses between which a commodity is The 
distributed need not all be present uses; some may be of future 
present and some future. A prudent person will endeavour 
to distribute his means between all their several uses, present 
and future, in such a way that they will have in each the 
same marginal utility. But in estimating the present mar- 
ginal utility of a distant source of pleasure a twofold allowance 
must be made; firstly, for its uncertainty (this is an objective 
property which all well-informed persons would estimate in 
the same way) ; and secondly, for the difference in the value 
to them of a distant as compared with a present pleasure 
(this is a subjective property which different people would 

‘ The working-class budgets which were mentioned in Ch. it. § 8 may render 
most important services in helping people to distribute their resources wisely 
between difierent uses, so that the marginal utility for each purpose shall be the 
same. But the vital problems of domestic economy relate as much to wise action 
as to wise spending. The English and the American housewife make limited 
means go a less way towards satisfying wants than the French housewife does, 
not because they do not know how to buy, but because they cannot produce as 
good finished commodities out of the raw material of inexpensive joints, vegetables 
etc., as she can. Domestic economy is often spoken of as belonging to the science 
of consumption: but that is only half true. The greatest faults in domestic 
economy, among the sober portion of the Anglo-Saxon working-classes at all events, 
are faults of production rather than of consumption. 



120 


CHOICE BETWEEN DIFFERENT USES 


III, V, 3. 


Future 
benefits 
are “dis- 
counted,” 
at different 
rates. 


Desire for 
lasting 
sources of 
enjoyment 
and for 
ownership. 


estimate in different ways according to their individual 
characters, and their circumstances at the time). 

If people regarded future benefits as equally desirable 
with similar benefits at the present time, they would pro- 
bably endeavour to distribute their pleasures and other 
satisfactions evenly throughout their lives. They would 
therefore generally be willing to give up a present pleasure 
for the sake of an equal pleasure in the future, provided they 
could be certain of having it. But in fact human nature is 
so constituted that in estimating the ‘‘present value’’ of a 
future benefit most people generally make a second deduction 
from its future value, in the form of what we may call a 
discount,” that increases with the period for which the 
benefit is deferred. One will reckon a distant benefit at 
nearly the same value which it would have for him if it were 
present; while another who has less power of realizing the 
future, less patience and self-control, will care comparatively 
little for any benefit that is not near at hand. And the 
same person will vary in his mood, being at one time 
impatient, and greedy for present enjoyment; while at 
another his mind dwells on the future, and he is willing to 
postpone all enjoyments that can conveniently be made to 
wait. Sometimes he is in a mood to care little for anything 
else: sometimes he is like the children who pick the plums 
out of their pudding to eat them at once, sometimes like 
those who put them aside to be eaten last. And, in any 
case, when calculating the rate at which a future benefit 
is discounted, we must be careful to make allowance for the 
pleasures of expectation. 

The rates at which different people discount the future 
affect not only their tendency to save, as the term is ordi- 
narily understood, but also their tendency to buy things 
which will be a lasting source of pleasure rather than those 
which give a stronger but more transient enjoyment; to buy 
a new coat rather than to indulge in a drinking bout, or to 
choose simple furniture that will wear well, rather than 
showy furniture that will soon fall to pieces. 

It is in regard to these things especially that the pleasure 
of possession makes itself felt. Many people derive from 



PRESENT AND FUTURE BENEFITS 


121 


the mere feeling of ownership a stronger satisfaction than iii, v,4. 
they derive from ordinary pleasures in the narrower sense 
of the term: for example, the delight in the possession of 
land will often induce people to pay for it so high a price that 
it yields them but a very poor return on their investment. 

There is a delight in ownership for its own sake; and there 
is a delight in ownership on account of the distinction it 
yields. Sometimes the latter is stronger than the former, 
sometimes weaker; and perhaps no one knows himself or 
other people well enough to be able to draw the line quite 
certainly between the two. 

§ 4. As has already been urged, we cannot compare the But we 
quantities of two benefits, which are enjoyed at different really 
times even by the same person. When a person postpones a 
pleasure-giving event he does not postpone the pleasure; but 
he gives up a present pleasure and takes in its place another, benefit, 
or an expectation of getting another at a future date: and 
we cannot tell whether he expects the future pleasure to be 
greater than the one which he is giving up, unless we know 
all the circumstances of the case. And therefore, even 
though we know the rate at which he discounts future 
pleasurable events, such as spending £1 on immediate grati- 
fications, we yet do not know the rate at which he discounts 
future pleasures^. 

^ In classifying some pleasures as more urgent than others, it is often for- 
gotten that the postponement of a pleasurable event may alter the circumstances 
under which it occurs, and therefore alter the character of the pleasure itself. For 
instance it may be said that a. young man discounts at a very high rate the 
pleasure of the Alpine tours which he hopes to be able to afford himself when he 
has made his fortune. He would much rather have them now, partly because 
they would give him much greater pleasure now. 

Again, it may happen that the postponement of a pleasurable event involves 
an unequal distribution in Time of a certain good, and that the Law of Diminu- 
tion of Marginal Utility acts strongly in the case of this particular good. For 
instance, it is sometimes said that the pleasured of eating are specially urgent; 
and it is undoubtedly true that if a man goes dinnerless for six days in the week 
and eats seven dinners on the seventh, he loses very much; because when post- 
poning six dinners, he does not postpone the pleasures of eating six separate 
dinners, but substitutes for them the pleasure of one day’s excessive eating. 

Again, when a person puts away eggs for the winter he does not expect that they 
will be better flavoured then than now; he expects that they will be scarce, and 
that therefore their utility will be higher than now. This shows the importance 
of drawing a clear distinction between discounting a future pleasure, and dis- 
coimting the pleasure derived from the future enjoyment of a certain amount of 
a commodity. For in the latter case we must make separate allowance for 



122 


CHOICE BETWEEN DIFFERENT USES 


III, T, 4 
An 

artificial 
measure 
of the 
rate of 
discount 
of future 
benefits. 


We can however get an artificial measure of the rate at 
which he discounts future benefits by making two assump- 
tions. These are, firstly, that he expects to be about as rich 
at the future date as he is now; and secondly, that his capa- 
city for deriving benefit from the things which money will 
buy will on the whole remain unchanged, though it may have 
increased in some directions and diminished in others. On 
these assumptions, if he is willing, but only just willing, to 
spare a pound from his expenditure now with the certainty 
of having (for the disposal of himself or his heirs) a guinea 
one year hence, we may fairly say that he discounts future 
benefits that are perfectly secure (subject only to the con- 
ditions of human mortality) at the rate of five per cent, per 
annum. And on these assumptions the rate at which he 
discounts future (certain) benefits, will be the rate at which 
he can discount money in the money market^. 


differences between the marginal utilities of the commodity at the two times: 
but in the former this has been allowed for once in estimating the amount of the 
pleasure; and it must not bo allowed for again. 

' It is important to remember that, except on these assumptions there is no 
direct connection between the rate of discount on the loan of money, and the rate 
at which future pleasures are discounted. A man may bo so impatient of delay 
that a certain promise of a pleasure ten years hence will not induce him to give 
up one close at hand which he regards as a quarter as great. And yet if he 
should fear that ten years hence money may be so scarce with him (and its 
marginal utility therefore so high) that half-a-crown then may give him more 
pleasure or save him more pain than a pound now, he will save something for the 
future even though he have to hoard it, on the same principle that he might store 
eggs for the winter. But we are here straying into questions that are more 
closely connected with Supply than with Demand. We shall have to consider 
them again from different points of view in connection with the Accumulation of 
Wealth, and later again in connection with the causes that determine the Kate of 
Interest. 

We may however consider here how to measure numerically the present value 
of a future pleasure, on the supposition that we know, (i) its amoimt, (ii) the date 
at which it will come, if it comes at all, (iii) the chance that it will come, and 
(iv) the rate at which the person in question discounts future pleasures. 

If the probability that a pleasure will be enjoyed is three to one, so that 
three chances out of four are in its favour, the value of its expectation is three- 
fourths of what it would be if it were certain: if the probability that it will be 
enjoyed were only seven to five, so that only seven chances out of twelve are in its 
favour, the value of its expectation is only seven-twelfths of what it would be if 
the event were certain, and so on. [This is its actuarial value: but further 
allowance may have to be made for the fact that the true value to anyone of an 
uncertain gain is generally less than its actuarial value (see the note on p. 209).] 
If the anticipated pleasure is both imcertain and distant, we have a twofold 
deduction to make from its full value. We will suppose, for instance, that a 
person would give 10s. for a gratification if it were present and certain, but that 



PRESENT AND FUTURE BENEFITS 


123 


So far we have considered each pleasure singly; but a in, v, 4. 
great many of the things which people buy are durable, i.e. Fut^ 
are not consumed in a single use; a durable good, such 
a piano, is the probable source of many pleasures, more or 
less remote; and its value to a purchaser is the 
of the usance, or worth to him of all these pleasures, allowance ties, 
being made for their uncertainty and for their distance^. 

it is due a year hence, and the probability of its happening then is three to one. 

Suppose also that he discounts the future at the rate of twenty per cent, per 
annum. Then the value to him of the anticipation of it is J x tVjt X 6j. 

Compare the Introductory chapter of Jevons’ Theory of Political Economy. 

‘ Of course this estimate is formed by a rough instinct; and in any attempt to 
reduce it to numerical accuracy (see Note V. in the Appendix), we must recollect 
what has been said, in this and the preceding Section, as to the impossibility of 
comparing accurately pleasures or other satisfactions that do not occur at the 
same time; and also as to the assumption of uniformity involved in supposing the 
discount of future pleasures to obey the exponential law. 



Ill, VI, 1. 

Price and 
Utility. 


Consumer's 

surplus 


is part of 
the benefit 
a man 
derives 


CHAPTER VI. 

VALUE AND UTILITY. 

§ 1. We may now turn to consider how far the price 
which is actually paid for a thing represents the benefit that 
arises from its possession. This is a wide subject on which 
economic science has very little to say, but that little is of 
some importance. 

We have already seen that the price which a person pays 
for a thing can never exceed, and seldom comes up to that 
which he would be willing to pay rather than go without it : 
so that the satisfaction which he gets from its purchase 
generally exceeds that which he gives up in paying away its 
price; and he thus derives from the purchase a surplus of 
satisfaction. The excess of the price which he would be 
willing to pay rather than go without the thing, over that 
which he actually does pay, is the economic measure of this 
surplus satisfaction. It may be called consumer's surplus. 

It is obvious that the consumer’s surpluses derived from 
some commodities are much greater than from others. There 
are many comforts and luxuries of which the prices are very 
much below those which many people would pay rather than 
go entirely without them; and which therefore afford a very 
great consumer’s surplus. Good instances are matches, salt, 
a penny newspaper, or a postage-stamp. 

This benefit, which he gets from purchasing at a low price 
things for which he would rather pay a high price than go 
without them, may be called the benefit which he derives 



CONSUMER’S SURPLUS 


126 


from his opportunities , or from his environment; or, to recur iii, vi, 2. 
to a word that was in common use a few generations ago, from from his 
his conjuncture. Our aim in the present chapter is to apply 
the notion of consumer’s surplus as an aid in estimating 
roughly some of the benefits which a person derives from his 
environment or his conjuncture^. 

§ 2. In order to give definiteness to our notions, let us Con- 
consider the case of tea' purchased for domestic consumption, surplus in 
Let us take the case of a man, who, if the price of tea th^dema^nd 
were 20^. a pound, would just be induced to buy one pound ^^duai 
annually; who would just be induced to buy two pounds if 
the price were 145., three pounds if the price were IO5., four 
pounds if the price were 65., five pounds if the price were 
45., six pounds if the price were 35., and who, the price 
being actually 25., does purchase seven pounds. We have to 
investigate the consumer’s surplus which he derives from his 
power of purchasing tea at 25. a pound. 

The fact that he would just be induced to purchase one 
pound if the price were 205., proves that the total enjoyment 
or satisfaction which he derives from that pound is as great as 
that which he could obtain by spending 205. on other things. 

When the price falls to 145., he could, if he chose, continue 
to buy only one pound. He would then get for 145. what 
was worth to him at least 205. ; and he will obtain a surplus 
satisfaction worth to him at least 65., or in other words a 
consumer’s surplus of at least 65. But in fact he buys a 
second pound of his own free choice, thus showing that he 
regards it as worth to him at least 145., and that this 
represents the additional utility of the second pound to him. 

He obtains for 285. what is worth to him at least 205. + 145. ; 
i.e. 345. His surplus satisfaction is at all events not diminished 
by buying it, but remains worth at least 65. to him. The 

‘ This term is a familiar one in German economics, and meets a need which is 
much felt in English economics. For “opportunity” and “environment,” the only 
available substitutes for it, are sometimes rather misleading. By Conjuncture says 
Wagner {Orundegungy Ed, m. p. 387), “we understand the sum total of the 
technical, economic, social and legal conditions; which, in a mode of national 
life {V olkswirthachafi) resting upon division of labour and private property, — 
especially private property in land and other material means of production — 
determine the demand for and supply of goods, and therefore their exchange 
value: this determination being as a rule, or at least in the main, independent of 
the will of the ownq^, of his activity and his remissness.” 



126 


VALUE AND UTILITY 


III, VI, 2 . total utility of the two pounds is worth at least 345., his 
consumer's surplus is at least 65.^ The fact that each 
additional purchase reacts upon the utility of the purchases 
which he had previously decided to make has already been 
allowed for in making out the schedule and must not be counted 
a second time. 

When the price falls to IO5., he might, if he chose, 
continue to buy only two pounds; and obtain for 205 . what 

* Some further explanations may be given of this statement; though in fact 
they do little more than repeat in other words what has already been said. 
The significance of the condition in the text that he buys the second pound of 
his own free choice is shown by the consideration that if the price of 14s, had been 
offered to him on the condition that he took two pounds, he would then have to 
elect between taking one poimd for 205. or two pounds for 285.: and then his 
taking two pounds would not have proved that he thought the second pound worth 
more than 85. to him. But as it is, he takes a second pound paying 145. uncon- 
ditionally for it; and that proves that it is worth at least 145. to him. (If he can 
get buns at a penny each, but seven for sixpence; and he elects to buy seven, we 
know that he is willing to give up his sixth penny for the sake of the sixth and the 
seventh buns: but we cannot tell how much he would pay rather than go without 
the seventh bun only.) 

It is sometimes objected that as he increases his purchases, the urgency of his 
need for his earlier purchases is diminished, and their utility falls; therefore we 
ought to continually redraw the earlier parts of our list of demand prices at a lower 
level, as we pass along it towards lower prices (i.e, to redraw at a lower level our 
demand curve as we pass along it to the right). But this misconceives the plan on 
which the list of prices is made out. The objection would have been valid, if 
the demand price set against each number of pounds of tea represented the averagt 
utility of that number. For it is true that, if he would pay just 205. for one 
pound, and just 145. for a second, then he would pay just 345. for the two; i.t, 175. 
each on the average. And if our list had had reference to the average prices he 
would pay, and had set 175. against the second pound; then no doubt we should 
have had to redraw the list as we passed on. For when he has bought a third 
pound the average utility to him of each of the three will be less than that of 175.; 
being in fact 145. Sd. if, as we go on to assume, he would pay just IO5. for a third 
pound. But this difficulty is entirely avoided on the plan of making out demand 
prices which is here adopted; according to which his second pound is credited, not 
with the 175. which represents the average value per pound of the two pounds; 
but with the 145., which represents the additional utility which a second pound 
has for him. For that remains unchanged when he has bought a third pound, of 
which the additional utility is measured by IO5. 

The first pound was probably worth to him more than 205. All that we know 
is that it was not worth less to him. He probably got some small surplus even on 
that. Again, the second pound was probably worth more than 145. to him. All 
that we know is that it was worth at least 145. and not worth 205. to him. He 
would get therefore at this stage a surplus satisfaction of at least 65., probably a 
little more. A ragged edge of this kind, as mathematicians are aware, always 
exists when we watch the effects of considerable changes, as that from 205. to 14s, 
a pound. If we had begun with a very high price, had descended by practically 
infinitesimal changes of a farthing per pound, and watched infinitesimal variations 
in his consumption of a small fraction of a pound at a time, this ragged edge would 
have disappeared. . 



INDIVIDUAL CONSUMER’S SURPLUS 127 

was worth to him at least 34^., and derive a surplus satis- iii, vi, 2. 
faction worth at least 145. But in fact he prefers to buy a 
third pound: and as he does this freely, we know that he 
does not diminish his surplus satisfaction by doing it. He 
now gets for 305. three pounds; of which the first is worth 
to him at least 205., the second at least 145., and the third at 
least IO 5 . The total utility of the three is worth at least 
445., his consumer’s surplus is at least 145., and so on. 

When at last the price has fallen to 25. he buys seven 
pounds, which are severally worth to him not less than 20, 

14, 10, 6, 4, 3, and 25. or 505. in all. This sum measures 
their total utility to him, and his consumer’s surplus is (at 
least) the excess of this sum over the 145. he actually does 
pay for them, i.e. 45s. This is the excess value of the 
satisfaction he gets from buying the tea over that which he 
could have got by spending the 145. in extending a little his 
purchase of other commodities, of which he had just not 
thought it worth while to buy more at their current prices; 
and any further purchases of which at those prices would 
not yield him any consumer’s surplus. In other words, 
he derives this 455. worth of surplus enjoyment from his 
conjuncture, from the adaptation of the environment to 
his wants in the particular matter of tea. If that adaptation 
ceased, and tea could not be had at any price, he would have 
incurred a loss of satisfaction at least equal to that which he 
could have got by spending 45s. more on extra supplies of 
things that were worth to him only just what he paid for 
them^. 

^ Prof. Nicholson (Frinctples of Political Economy^ Vol. i and Economic 
Journal^ VoL iv.) has raised objections to the notion of consumers* surplus, 
which have been answered by Prof. Edgeworth in the same Journal. Prof. 

Nicholson says: — “Of what avail is it to say that the utility of an income 
of (say) £100 a year is worth (say) £10(X) a year?** There would be no avail 
in saying that. But there might be use, when comparing life in Central Africa 
with life in England, in saying that, though the things which money will buy 
in Central Africa may on the average be as cheap there as here, yet there are so 
many things which cannot be bought there at all, that a person with a thousand 
a year there is not so well of! as a person with three or four hundred a year here. 

If a man pays Id, toll on a bridge, which saves him an additional drive that would 
cost a shilling, we do not say that the penny is worth a shilling, but that the penny 
together with the advantage oflfered him by the bridge (the part it plays in 
his conjuncture) is worth a s hillin g for that day. Were the bridge swept away on 
a day on which he needed it, he would be in at least as bad a position as if he had 
been deprived of eleven pence. 



128 


VALUE AND UTILITY 


III, VI, 3. 

Demand of 
a market 


§ 3. In the same way if we were to neglect for the 
moment the fact that the same sum of money represents 
different amounts of pleasure to different people, we might 
measure the surplus satisfaction which the sale of tea affords, 
say, in the London market, by the aggregate of the sums by 
which the prices shown in a complete list of demand prices 
for tea exceeds its selling price^. 


‘ Let us then consider the demand curve DD' for tea in any large market. 

Let OH be the amount which is sold there at the 
price HA annually, a year being taken as our unit 
of time. Taking any point M in OH let us draw 
MP vertically upwards to meet the curve in P and 
cut a horizontal line through A in 22. We will 
suppose the several lbs. numbered in the order 
of the eagerness of the several purchasers: the 
eagerness of the purchaser of any lb. being mea- 
sured by the price he is just willing to pay for 
that lb. The figure informs us that OM can be 
sold at the price PM ; but that at any higher price o M H 

not quite so many lbs. can be <8old. There must be then some individual who will 
buy more at the price Pikf, than he will at any higher price; and we are to regard 
the OMih lb. as sold to this individual. Suppose for instance that PM represents 
4 j., and that OM represents a million lbs. The purchaser described in the text is 
just willing to buy his fifth lb of tea at the price 4;., and the OMih or millionth 
lb. may be said to be sold to him. H AH and therefore PM represent 2^., the 
consumers’ surplus derived from the OMth lb. is the excess of PM or 4s. which the 
purchaser of that lb. would have been willing to pay for it over RM the 2s. which 
he actually does pay for it. Let us suppose that a very thin vertical parallelogram 
is drawn of which the height is PM and of which the base is the distance along Ox 
that measures the single unit or lb. of tea. It will be convenient henceforward to 
regard price as measured not by a mathematical straight line without thickness, 
as PM\ but by a very thin parallelogram, or as it may be called a thick straight 
line, of which the breadth is in every case equal to the distance along Ox which 
measures a unit or lb. of tea. Thus we should say that the total satisfaction 
derived from the OJfth lb. of tea is represented (or, on the assumption made in 
the last paragraph of the text is measured) by the thick straight line MP; 
that the price paid for this lb. is represented by the thick straight line MR 
and the consumers’ surplus derived from this lb. by the thick straight line RP. 
Now let us suppose that such thin parallelograms, or thick straight lines, are 
drawn from all positions of M between 0 and one for each lb. of tea. The 
thick straight lines thus drawn, as MP is, from Ox up to the demand curve 
will each represent the aggregate of the satisfaction derived from a lb. of tea; 
and taken together thus occupy and exactly fill up the whole area DOHA. 
Therefore we may say that the area DOHA represents the aggregate of the satis- 
faction derived from the consumption of tea. Again, each of the straight lines 
drawn, as MR is, from Ox upwards as far aa AC represents the price that actually 
is paid for a lb. of tea. These straight lines together make up the area COHA; 
and therefore this area represents the total price paid for tea. Finally each 
of the straight lines drawn as RP is from AC upwards as far as the demand curve, 
represents the consumers’ surplus derived from the corresponding lb. of tea. 
These straight lines together make up the area DCA; and therefore this area 
represents the total consumers’ surplus that is derived from tea when the price is 




THIS ANALYSIS GIVES FORM TO FAMILIAR NOTIONS 


129 


This analysis, with its new names and elaborate machinery, iii, vi, 3 . 
appears at first sight laboured and unreal. On closer This 
study it will be found to introduce no new difiSculties and aJ^s^oniy 
to make no new assumptions; but only to bring to 
difficulties and assumptions that are latent in the common 
language of the market-place. For in this, as in other cases, notions, 
the apparent simplicity of popular phrases veils a real com- 
plexity, and it is the duty of science to bring out, that latent 
complexity; to face it; and to reduce it as far as possible: 
so that in later stages we may handle firmly difficulties that 
could not be grasped with a good grip by the vague thought 
and language of ordinary life. 

It is a common saying in ordinary life that the real worth 
of things to a man is not gauged by the price he pays for them: 
that, though he spends for instance much more on tea than 
on salt, yet salt is of greater real worth to him ; and that this 
would be clearly seen if he were entirely deprived of it. 

This line of argument is but thrown into precise technical 
form when it is said that we cannot trust the marginal utility 
of a commodity to indicate its total utility. If some ship- 
wrecked men, expecting to wait a year before they were 
rescued, had a few pounds of tea and the same number of 
pounds of salt to divide between them, the salt would be the 
more highly prized; because the marginal utility of an ounce 
of salt, when a person expects to get only a few of them in the 
year is greater than that of tea under like circumstances. 

But, under ordinary circumstances, the price of salt being 
low, every one buys so nluch of it that an additional pound 
would bring him little additional satisfaction : the total utility 
of salt to him is very great indeed, and yet its marginal 
utility is low. On the other hand, since tea is costly, most 
people use less of it and let the water stay on it rather longer 
than they would, if it could be got at nearly as low a price 


AH. But it must be repeated that this geometrical measurement is only an 
aggregate of the measures of benefits which are not all measured on the same 
scale except on the assumption just made in the text. Unless that assumption 
is made the area only represents an aggregate of satisfactions, the several amounts 
of which are not exactly measured. On that assumption only, its area measures 
the volume of the total net satisfaction derived from the tea by its various pur- 
chasers. 


H. 


5 



ISO 


VALUl AND UTILITY 


aB salt can. Their desire for it is far from being satiated: 
its marginal utility remains high, and they may be willing 
to pay as mnch for an additional ounce of it as they would 
for an additional pound of salt. The common saying of 
ordinary life with which we began suggests aH this: but 
not in an exact and definite form, such as is needed for 


a statement which will often be applied in later work. 


In repard 
to different 
people 
allowance 
mav have 
to be made 
where 
necessary 
for differ- 
ences of 
sensibility 


The use of technical terms at starting adds nothing to 
knowledge: but it puts familiar knowledge in a firm compact 
shape, ready to serve as the basis for further study^. 

Or the real worth of a thing might be discussed with 
reference not to a single person but to people in general; 
and thus it would naturally be assumed that a shilling’s 
worth of gratification to one Er^lishman might be taken as 
equivalent with a shilling’s worth to another, ‘^to start with,” 
and “until cause to the contrary were shown.” But every- 
one would know that this was a reasonable course only on 


the supposition that the consumers of tea and those of salt 
belonged to the same classes of people; and included people 
e£ every variety of temperament^, 
and for This involves the consideration that a pound’s worth of 
of^weai^* satisfaction to an ordinary poor man is a much greater thing 
tfcan a pound’s worth of satisfaction to an ordinary rich 
man: and if instead of comparing tea and salt, which are 


‘ Harris On Coins 1757, says “Things in general are valued, not according to 
their real uses in supplying the necessities of men ; but rather in proportion to the 
land;, labour and skill that sue reepaisite to produce them. Dt is- accoiding to this 
proportion nearly, that things or commodities are exchanged one for another; and 
it is by tfoe said scale, that the intrinsic values of most things are chiefly estimated. 
Water ie of great use, and yet ordinarily of IMe or no ^ue; because in most 
places, water flows spontaneously in such great plenty, as not to be withheld 
within the limits of private property; but all may have enough, without other 
expense then that of bringing or conducting it, when the case so requires. On the 
other hand, diamonds being very scarce, have upon that account a great value, 
though they are but little use.^ 

* There might conceivably be persons of ■ high sensibility who would suffer 
specially from the want of either salt or tea: or who were generally sensitive, and 
would suffer more from the loss of a certain part of their income than others in 
the same station of life. But it would be assumed that such differences between 
individuals might be neglected, since we were considering in either case the 
average of large numbers of people; though of course it might be necessary to 
constder whether there were some special reason for believing, say, that those who 
laid mewt store by tea were a specially sensitive class of people. If it could^ then 
a separate allowance for this would have to be made before applying the results of 
economical analysis to practical problems of ethics or politics. 



THIS ANALYSIS GIVES EORM TO FAMILIAR NOTIONS 


131 


both used largely by all classes, we compared either of them iii, vi, s. 
with champagne or pineapples, the correction to be made on 
this account would be more than important: it would change 
the whole character of the estimate. In earlier generations 
many statesmen, and even some economists, neglected to 
make adequate allowance for considerations of this class, 
especially when constructing schemes of taxation; and their 
words or deeds seemed to imply a want of sympathy with 
the sufEerings of the poor; though more often they were due 
simply to want of thought. 

On the whole however it happens that by far the greater 
number of the events with which economics deals, affect in but it is 
about equal proportions all the different classes of society; so needed in 
that if the money measures of the happiness caused by two 
events are equal, there is not in general any very great 
difference between the amounts of the happiness in the two 
cases. And it is on account of this fact that the exact 
measurement of the consumers’ surplus in a market has 
already much theoretical interest, and may become of high 
practical importance. 

It will be noted however that the demand prices of each 
commodity, on which our estimates of its total utility and 
consumers’ surplus are based, assume that other things remain 
equal, while its price rises to scarcity value; and when the 
total utilities of two commodities which contribute to the 
same purpose are calculated on this plan, we cannot say that 
the total utility of the two together is equal to the sum of 
the total utilities of each separately^. 


^ Some ambiguous phrases in earlier editions appear to have uuggested to 
some readers the opposite opinion. But the task of adding together the total 
utilities of all commodities, io as to obtain the aggregate of the total utility of all 
wealth, is beyond the range of any but the most elaborate mathematical formulae. 
An attempt to treat it by them some years ago convinced the present writer that 
even if the task be theoretically feasible, the result would be encumbered by so 
many hypotheses as to be practically useless. 

Attention has already (pp. 100, 105) been called to the fact that for some 
purposes such things as tea and cofiee must be grouped together as one com- 
modity: and it is obvious that, if tea were inaccessible, people would increase 
their consumption of coflee, and vice versd. The loss that people would suffer 
from being deprived both of tea and coffee would be greater than the sum of 
their losses from being deprived of either alone: and therefore the total utility of 
tea and coffee is greater than the sum of the total utility of tea calculated on the 



132 


VALUE AND UTILITY 


III, VI, 4. 

It is 
seldom 
necessary 
to take 
account of 
changes in 
the pur- 
chaser’s 
command 
of money. 


§4. The substance of our argument would not be 
afEected if we took account of the fact that, the more a person 
spends on anything the less power he retains of purchasing 
more of it or of other things, and the greater is the value of 
money to him (in technical language every fresh expendi- 
ture increases the marginal value of money to him). But 
though its substance would not be altered, its form would 
be made more intricate without any corresponding gain; 
for there are very few practical problems, in which the 
corrections to be made under this head would be of any 
importance^. 

There are however some exceptions. For instance, as 
Sir R. Giffen has pointed out, a rise in the price of bread 
makes so large a drain on the resources of the poorer labouring 
families and raises so much the marginal utility of money to 
them, that they are forced to curtail their consumption of 
meat and the more expensive farinaceous foods: and, bread 
being still the cheapest food which they can get and will 
take, they consume more, and not less of it. But such cases 
are rare; when they are met with, each must be treated on 
its own merits. 

supposition that people can have recourse to coffee, and that of coffee calculated 
on a like supposition as to tea. This difficulty can be theoretically evaded by 
grouping the two “rival” commodities together under a common demand schedule. 
On the other hand, if we have calculated the total utility of fuel with reference 
to the fact that without it we could not obtain hot water to obtain the beverage tea 
from tea leaves, we should coimt something twice over if we added to that utility 
the total utility of tea leaves, reckoned on a similar plan. Again the total utility 
of agricultural produce includes that of ploughs; and the two may not be added 
together; though the total utility of ploughs may be discussed in connection with 
one problem, and that of wheat in connection with another. Other aspects of 
these two difficulties are examined in V. vi. 

Prof. Patten has insisted on the latter of them in some able and suggestive 
writings. But his attempt to express the aggregate utility of all forms of wealth 
seems to overlook many difficulties. 

^ In mathematical language the neglected elements would generally belong to 
the second order of small quantities; and the legitimacy of the familiar scientific 
method by which they are neglected would have seemed beyond question, had not 
Prof. Nicholson challenged it. A short reply to him has been given by Prof. Edge- 
worth in the Economic Journal for March 1894; and a fuller reply by Prof. Barone 
in the Oiomale degli Economisti for Sept. 1894; of which some account is given 
by Mr Sanger in the Economic Journal for March 1895. 

As is indicated in Note VI. in the Mathematical Appendix, formal account could 
be taken of changes in the marginal utility of money, if it were desired to do so. 
If we attempted to add together the total utilities of all commodities, we should be 
bound to do so : that task is however impracticable. 



LIMITATIONS OF THE DOCTRINE 


133 


It has already been remarked that we cannot guess at 
all accurately how much of anything people would buy at 
prices very difEerent from those which they are accustomed 
to pay for it: or in other words, what the demand prices for 
it would be for amounts very different from those which are 
commonly sold. Our list of demand prices is therefore 
highly conjectural except in the neighbourhood of the 
customary price ; and the best estimates we can form of the 
whole amount of the utility of anything are liable to large 
error. But this difficulty is not important practically. For 
the chief applications of the doctrine of consumers’ surplus 
are concerned with such changes in it as would accompany 
changes in the price of the commodity in question in the 
neighbourhood of the customary price: that is, they require 
us to use only that information with which we are fairly 
well supplied. These remarks apply with special force to 
necessaries^. 

§ 5. There remains another class of considerations which 
are apt to be overlooked in estimating the dependence of 
wellbeing upon material wealth. Not only does a person’s 

‘ The notion of consumers’ surplus may help us a little now; and, when our 
statistical knowledge is further advanced, it may help us a great deal to decide 
how much injury would be done to the public by an additional tax of Qd. a pound 
on tea, or by an addition of ten per cent, to the freight charges of a railway: and 
the value of the notion is but little diminished by the fact that it would not help 
us much to estimate the loss that would be caused by a tax of 30s. a pound on tea, 
or a tenfold rise in freight charges. 

Reverting to our last diagram, we may express this by saying that, if is the 
point on the curve corresponding to the amount that is wont to be sold in the 
market, data can be obtained sufficient for drawing the curve with tolerable 
correctness for some distance on either side of A; though the curve can seldom 
be drawn with any approach to accuracy right up to D. But this is practically 
unimportant, because in the chief practical applications of the theory of value we 
should seldom make any use of a knowledge of the whole shape of the demand 
curve if we had it. We need just what we can get, that is, a fairly correct know- 
ledge of its shape in the neighbourhood of A. We seldom require to ascertain the 
total area DCA ; it is sufficient for most of our purposes to know the changes in 
this area that would be occasioned by moving A through small distances along the 
curve in either direction. Nevertheless it will save trouble to assume provision- 
aUy, as in pure theory we are at liberty to do, that the curve is completely drawn. 

There is however a special difficulty in estimating the whole of the utility of 
commodities some supply of which is necessary for life. If any attempt is made 
to do it, the best plan is perhaps to take that necessary supply for granted, and 
estimate the total utiUty only of that part of the commodity which is in excess of 
this amount. But we must recollect that the desire for anything is much 
dependent on the difficulty of getting substitutes for it. (See Note VI. in 
the Mathematical Appendix.) 


Ill, VI, 5. 

We can 
seldom 
obtain a 
complete 
list of 
demand 
prices: 
nor do we 
often need 
them. 


Elements 
of collect- 
ive wealth 
are apt to 
be over- 
looked. 



134 


VALUE AND UTILITY 


III, TI, 6. 


So-called 
consumers’ 
associa- 
tions 
belong to 
the subject 
of Pro- 
duction. 


We are 
here con- 
cerned 
with large 
incomes 
rather 
than large 
posses- 
sions. 


happiness often depend more on his own physical, mental 
and moral health than on his external conditions: but even 
among these conditions many that are of chief importance 
for his real happiness are apt to be omitted from an inventory 
of his wealth. Some are free gifts of nature; and these 
might indeed be neglected without great harm if they were 
always the same for everybody; but in fact they vary much 
from place to place. More of them however are elements of 
collective wealth which are often omitted from the reckoning 
of individual wealth; but which become important when 
we compare different parts of the modern civilized world, 
and even more important when we compare our own age 
with earlier times. 

Collective action for the purposes of securing common 
wellbeing, as for instance in lighting and watering the streets, 
will occupy us much towards the end of our inquiries. 
Co-operative associations for the purchase of things for 
personal consumption have made more progress in England 
than elsewhere: but those for purchasing the things wanted 
for trade purposes by farmers and others, have until lately 
been backward in England. Both kinds are sometimes 
described as Consumers’ associations; but they are really 
associations for economizing effort in certain branches of 
business', and belong to the subject of Production rather 
than Consumption. 

§ 6. When we speak of the dependence of wellbeing on 
material wealth, we refer to the flow or stream of wellbeing 
as measured by the flow or stream of incoming wealth and 
the consequent power of using and consuming it. A person’s 
stock of wealth yields by its usance and in other ways an 
income of happiness, among which of course are to be counted 
the pleasures of possession: but there is little direct con- 
nection between the aggregate amount of that stock and his 
fl-ggregate happiness. And it is for that reason that we have 
throughout this and preceding chapters spoken of the rich, 
the middle classes and the poor as having respectively large, 
medium and small incomes — not possessions^ 


* See Note VII. in the Appendix. 



BROADER ASPECTS OP THE UTILITY OP WEALTH 


13S 


In accordance with a suggestion made by Daniel Ber- ni,vi, 8. 
nouUi, we may regard the satisfaction which a person derives Be^ 
from his income as commencing when he has enough tOg°g^ 
support life, and afterwards as increasing by equal amounts 
with every equal successive percentage that is added to his 
income; and rice versd for loss of income^. 

But after a time new riches often lose a great part of The edge 
their charms. Partly this is the result of familiarity; which ^ent 
makes people cease to derive much pleasure from accustomed 
comforts and luxuries, though they suffer greater pain from 
their loss. Partly it is due to the fact that with increased 
riches there often comes either the weariness of age, or at 
least an increase of nervous strain; and perhaps even habits of 
living that lower physical vitality, and diminish the capacity 
for pleasure, 

* That is to say, if £30 represent necessaries, a person’s satisfaction from his 
income will begin at that point; and when it has reached £40, an additional £1 
will add a tenth to tiie £10 whicli represents its happiness-yielding power. But if 
his income were £100, that is £70 above the level of necessaries, an additional £7 
would be required to add as much to his happiness as £1 if his income were £40: 
while if his income were £10,000, an additional £1000 would be needed to produce 
an equal effect (compare Note VIII. in the Appendix). Of course such estimates 
are very much at random, and unable to adapt themselves to the varying circum- 
stances of individtial life. As we shall see later, the systems of taxation which are 
now most widely prevalent follow generally on the lines of Bernoulli’s suggestion. 

Earlier systems took from the poor very much more than would be in accordance 
with that plan; wliile the systems of graduated taxation, which are being fore- 
shadowed in several countries, are in some measure based on the assumption that 
the addition of one per cent, to a very large income adds less to the wellbeing of 
its owner than an addition of one per cent, to smaller incomes would, even after 
Bernoulli’s correction for necessaries has been made. 

It may be mentioned in passing that from the general law that the utility to 
anyone of an additional £1 diminishes with the number of pounds he already has, 
there follow two important practical principles. The first is that gambling 
involves an economic loss, even when conducted on perfectly fair and even terms. 

For instance, a man who having £600 makes a fair even bet of £100, has now an 
expectation of happiness equal to half that derived from £700, and half that 
derived from £500; and this is less than the certain expectation of the happiness 
derived from £600, because by hypothesis the difference between the happiness 
got from £600 and £500 is greater than the difference between the happiness got 
from £700 and £600. (Compare Note IX. in the Appendix and Jevons, L c. 

Ch. rv.) The second principle, the direct converse of the first, is that a 
theoretically fair insurance against risks is always an economic gain. But of 
course every insurance office, after calculating what is a theoretically fair 
premium, has to share in addition to it enough to pay profits on its own capital, 
and to cover its own expenses of working, among which are often to be reckoned 
very heavy items for advertising and for losses by fraud. The question whether 
it is advisable to pay the premium which insurance offices practically do charge, 
is one that must be decided for each case on its own merits. 



136 


VALUE AND UTILITY 


III, VI, 6. In every civilized country there have been some followers 
The vaiue of the Buddhist doctrine that a placid serenity is the highest 

of his nature as many wants and desires as he can; that real 
riches consist not in the abundance of goods but in the 
paucity of wants. At the other extreme are those who 
maintain that the growth of new wants and desires is always 
beneficial because it stimulates people to increased exertions. 
They seem to have made the mistake, as Herbert Spencer 
says, of supposing that life is for working, instead of working 
for life^. 

The excel- The truth seems to be that as human nature is consti- 
modTerate tuted, man rapidly degenerates unless he has some hard work 
^toed by some difficulties to overcome; and that some strenuous 
^o^«rate exertion is necessary for physical and moral health. The 
fulness of life lies in the development and activity of as many 
and as high faculties as possible. There is intense pleasure 
in the ardent pursuit of any aim, whether it be success in 
business, the advancement of art and science, or the improve- 
ment of the condition of one’s fellow-beings. The highest 
constructive work of all kinds must often alternate between 
periods of over-strain and periods of lassitude and stagnation; 
but for ordinary people, for those who have no strong am- 
bitions, whether of a lower or a higher kind, a moderate income 
earned by moderate and fairly steady work offers the best 
opportunity for the growth of those habits of body, mind, 
and spirit in which alone there is true happiness. 

Expend!- There is some misuse of wealth in all ranks of society, 
thrsake And though, speaking generally, we may say that every 
of display, jj^^jj^ase in the wealth of the working classes adds to the 
fulness and nobility of human life, because it is used chiefly 
in the satisfaction of real wants; yet even among the artisans 
in England, and perhaps still more in new countries, there 
are signs of the growth of that unwholesome desire for wealth 
as a means of display which has been the chief bane of the 
well-to-do classes in every civilized country. Laws against 
luxury have been futile; but it would be a gain if the moral 
sentiment of the community could induce people to avoid 

^ See bis lecture on The Oospd of Relaxation. 



BROADER ASBECtS OE BHfi OtlLItY OF WEALtH 


13 ? 


all sorts of display of individual wealth. There are indeed 6. 
true and worthy pleasures to be got from wisely ordered The 
magnificence : but they are at their best when free from any 
taint of personal vanity on the one side and envy on the . 

^ . collective 

other; as they are when they centre round public buildings, over the 

public parks, public collections of the fine arts, and public of wealth!* 

games and amusements. So long as wealth is applied to 

provide for every family the necessaries of life .and culture, 

and an abundance of the higher forms of enjoyment for 

collective use, so long the pursuit of wealth is a noble aim; 

and the pleasures which it brings are likely to increase 

with the growth of those higher activities which it is used 

to promote. 

When the necessaries of life are once provided, everyone The 
should seek to increase the beauty of things in his possession purchaser 
rather than their number or their magnificence. An iin-thep^r^* 
provement in the artistic character of furniture and clothing 
trains the higher faculties of those who make them, and is 
a source of growing happiness to those who use them. But of broal 
if instead of seeking for a higher standard of beauty, we^^Sc™’ 
spend our growing resources on increasing the complexity 
and intricacy of our domestic goods, we gain thereby no true 
benefit, no lasting happiness. The world would go much 
better if everyone would buy fewer and simpler things, and 
would take trouble in selecting them for their real beauty; 
being careful of course to get good value in return for his 
outlay, but preferring to buy a few things made well by 
highly paid labour rather than many made badly by low 
paid labour. 

But we are exceeding the proper scope of the present 
Book; the discussion of the influence on general wellbeing 
which is exerted by the mode in which each individual 
spends his income is one of the more important of those 
applications of economic science to the art of living. 



BOOK IV 


THE AGENTS OF PRODUCTION. 
LAND, LABOUR, CAPITAL AND ORGANIZATION. 


CHAPTER L 

INTRODUCTORY. 


IV, X, 1 . § 1. The agents of production are cammonlj classed as 

The Land, Labour and Capital. By Land is meant tbe material 
5?^ctfon forces which Nature gives freely for man's aid, in land 

and water, in air and light and heat. By Labour is meant 
under three the economic work of man, whether with the hand or the 
* head^. By Capital is meant all stored-up provision for the 
production of material goods, and for the attainment of those 
benefits which are commonly reckoned as part of income. It 
is the main stock of wealth regarded as an agent of pro- 
duction rather than as a direct source of gratification. 

Capital consists in a great part of knowledge and organi- 
zation: and of this some part is private property and other 
part is not. Knowledge is our most powerful engine of pro- 
duction; it enablea us- to subdue Nature and force her to 
satisfy our wants. Organization aids knowledge; it has 

^ Labour is classod as economic when it is “undergone partly or wholly with 
a view to some good other than the pleasure directly derived from it.** See p. 65 
and footnote. Such labour with the head as does not tend directly or indirectly 
to promote material production, as for instance the work of the schoolboy at his 
tasks, is left out of account, so long as we are confining our attention to production 
in the ordinary sense of the term. From some points of view, but not from all, 
the phrase Land, Labour, Capital would be more symmetrical if labour were 
interpreted to mean the labourers, t.e. mankind. See Walras, ^conomie Politique 
Pwt^ Le^on 17, and Prof. Fisher, Ecowmie JowmcU, vi. p. 529. 



RELATIONS BETWEEN AGENTS OF PRODUCTION 


139 


many forms, e.g, that of a single business, that of various iv, i, i. 
businesses in the same trade, that of various trades relatively 
to one another, and that of the State providing security for 
all and help for many. The distinction between public 
and private property in knowledge and organization is of 
great and growing importance: in some respects of more 
importance than that between public and private property 
in material things; and partly for that reason it seems best 
sometimes to reckon Organization apart as a distinct agent 
of production. It cannot be fully examined till a much later 
stage in our inquiry; but something has to be said of it in 
the present Book. 

In a sense there are only two agents of production, nature but for 
and man. Capital and organization are the result of thepu^oses 
work of man aided by nature, and directed by his power of 
forecasting the future and his willingness to make provision 
for it. If the character and powers of nature and of man be 
given, the growth of wealth and knowledge and organization 
follow from them as effect from cause. But on the other 
hand man is himself largely formed by his surroundings, in 
which nature plays a great part: and thus from every point 
of view man is the centre of the problem of production as 
well as that of consumption; and also of that further problem 
of the relations between the two, which goes by the twofold 
name of Distribution and Exchange. 

The growth of mankind in numbers, in health 
strength, in knowledge, ability, and in richness of character and an 
is the end of all our studies: but it is an aim to which production, 
economics can do no more than contribute some important 
elements. In its broader aspects therefore the study of this 
growth belongs to the end, if to any part of a treatise on 
economics: but does not properly belong even there. Mean- 
while we cannot avoid taking account of the direct agency of 
man in production, and of the conditions which govern his 
efficiency as a producer. And on the whole it is perhaps 
the most convenient course, as it certainly is that most in 
accordance with English tradition, to include some account 
of the growth of population in numbers and character as a 
part of the general discussion of production. 



140 


INTRODUCTORY 


IV, I, 2. 

Provisional 
antithesis 
of demand 
and supply, 


ordinary 
labour 
being 
selected 
for illus- 
tration. 


The 

discom- 
modities of 
labour are 
various, 


as are its 
motives. 


§2. It is not possible at this stage to do more than 
indicate very slightly the general relations between demand 
and supply, between consumption and production. But it 
may be well, while the discussion of utility and value is 
fresh in our minds, to take a short glance at the relations 
between value and the disutility or discommodity that has 
to be overcome in order to obtain those goods which have 
value because they are at once desirable and dijOBicult of 
attainment. All that can be said now must be provisional; 
and may even seem rather to raise difficulties than to solve 
them: and there will be an advantage in having before us a 
map, in however slight and broken outline, of the ground to 
be covered. 

While demand is based on the desire to obtain com- 
modities, supply depends mainly on the overcoming of 
the unwillingness to undergo ‘‘discommodities.” These 
fall generally under two heads: — labour, and the sacrifice 
involved in putting off consumption. It must suffice here 
to give a sketch of the part played by ordinary labour in 
supply. It will be seen hereafter that remarks similar, 
though not quite the same, might have been made about 
the work of management and the sacrifice which is in- 
volved (sometimes, but not always) in that waiting which 
is involved in accumulating the means of production. 

The discommodity of labour may arise from bodily or 
mental fatigue, or from its being carried on in unhealthy 
surroundings, or with unwelcome associates, or from its 
occupying time that is wanted for recreation, or for social 
or intellectual pursuits. But whatever be the form of the 
discommodity, its intensity nearly always increases with the 
severity and the duration of labour. 

Of course much exertion is undergone for its own sake, 
as for instance in mountaineering, in playing games and in 
the pursuit of literature, of art, and of science; and much 
hard work is done under the influence of a desire to benefit 
others^. But the chief motive to most labour, in our use of 

^ We have seen (p. 124) that, if a person makes the whole of his purchases at 
the price which he would be just willing to pay for his last purchases, he gains 
a surplus of satisfaction on his earlier purchases; since he gets them for less than 



UTILITY AND DISUTILITY OR COST 


141 


the term, is the desire to obtain some material advantage; iv, i, 2. 
which in the present state of the world appears generally in 
the form of the gain of a certain amount of money. It is 
true that even when a man is working for hire he often finds 
pleasure in his work: but he generally gets so far tired 
before it is done that he is glad when the hour for stopping 
arrives. Perhaps after he has been out of work for some time, 
he might, as far as his immediate comfort is concerned, rather 
work for nothing than not work at all; but he will probably 
prefer not to spoil his market, any more than a manu- 
facturer would, by offering what he has for sale much below 
its normal price. On this matter much will need to be said 
in another volume. 

In technical phrase this may be called the marginal 
disutility of labour. For, as with every increase in the 
amount of a commodity its marginal utility falls; and as 
with every fall in that desirableness, there is a fall in the 
price that can be got for the whole of the commodity, 
and not for the last part only; so the marginal disutility 
of labour generally increases with every increase in its 
amount. 

The unwillingness of anyone already in an occupation to Though 
increase his exertions depends, under ordinary circumstances, SniJasur- 
on fundamental principles of human nature which economists 
have to accept as ultimate facts. As Jevons remarks^, there 
is often some resistance to be overcome before setting to 
work. Some little painful effort is often involved at starting; 
but this gradually diminishes to zero, and is succeeded by 
pleasure; which increases for a while until it attains a certain 
low maximum; after which it diminishes to zero, and is 

he would have paid rather than go without them. So, if the price paid to him for 
doing any work is an adequate reward for that part which he does most unwillingly; 
and if, as generally happens, the same payment is given for that part of the work 
which he does less unwillingly and at less real cost to himself; then from that 
part he obtains a producer’s surplus. Some difhculties connected with this notion 
are considered in Appendix K. 

The labourer’s unwillingness to sell his labour for less than its normal price 
resembles the unwillingness of manufacturers to spoil their market by pushing 
goods for sale at a low price; even though, so far as the particular transaction is 
concerned, they would rather take the low price than let their works stand idle. 

' Theory of Political Economy^ Ch. v. This doctrine has been emphasized and 
developed in much detail by Austrian and American economists. 



142 


INTRODUCTORY 


IV, 1 , 2. succeeded by increasing weariness and craving for relaxation 
and change. In intellectual work, however, the pleasure and 
excitement, after they have once set in, cfften go on increas- 
ing till progress is stopped of necessity or by prudence. 
Everyone in health has a certain store of energy on which 
he can draw, but which can only be replaced by rest; so that 
if his expenditure exceed his income for long, his health 
becomes bankrupt; and employers often find that in cases 
of great need a temporary increase of pay will induce their 
workmen to do an amount of work which they cannot long 
keep up, whatever they are paid for it. One reason of this 
is that the need for relaxation becomes more urgent with 
every increase in the hours of labour beyond a certain limit. 
The disagreeableness of additional work increases; partly 
because, as the time left for rest and other activities 
diminishes, the agreeableness of additional free time in- 
creases. 

Subject to these and some other qualifications, it is 
s^posi- broadly true that the exertions which any set of workers 
willingness will make, rise or fall with a rise or fall in the remuneration 
^vemU* which is offered to them. As the price required to attract 
pncetobe P^r<^li*sers for any given amount of a commodity, was called 
got for it, the demand price for that amount during a year or any 
other given time; so the price required to call forth the 
exertion necessary for producing any given amount of a 
commodity, may be called the supply price for that amount 
during the same time. And if for the moment we assumed 
that production depended solely upon the exertions of a 
certain number of workers, already in existence and trained 
for their work, we should get a list of supply prices corre- 
sponding to the list of demand prices which we have already 
considered. This list would set forth theoretically in one 
column of figures various amounts of exertion and therefore 
of production; and in a parallel colunm the prices which 
must be paid to induce the available workers to put forth 
these amounts of exertion^. 

But this simple method of treating the supply of work 
of any kind, and consequently the supply of goods made by 

^ See above 111. m. 4. 



SOME DIFFICULTIES AHEAD 


143 


that work, assumes that the number of those who are iv, i, 2. 
qualified for it is fixed; and that assumption can be madepore^t 
only for short periods of time. The total numbers of 
people change under the action of many causes. Of p in 
causes only some are economic; but among them the average real life, 
earnings of labour take a prominent place; though their 
influence on the growth of numbers is fitful and irregular. 

But the distribution of the population between different 
trades is more subject to the influence of economic causes. 

In the long run the supply of labour in any trade is adapted 
more or less closely to the demand for it: thoughtful parents 
bring up their children to the most advantageous occupations 
to which they have access; that is to those that offer the 
best reward, in wages and other advantages, in return for 
labour that is not too severe in quantity or character, and 
for skill that is not too hard to be acquired. This adjustment 
between demand and supply can however never be perfect; 
fluctuations of demand may make it much greater or much 
less for a while, even for many years, than would have been 
just sufficient to induce parents to select for their children 
that trade rather than some other of the same class. 
Although therefore the reward to be had for any kind of work 
at any time does stand in some relation to the difficulty 
of acquiring the necessary skill combined with the exertion, 
the disagreeableness, the waste of leisure, etc. involved in 
the work itself; yet this correspondence is liable to great 
disturbances. The study of these disturbances is a difficult 
task; and it will occupy us much in later stages of our 
work. But the present Book is mainly descriptive and raises 
few difficult problems. 



CHAPTER 11. 

THE FERTILITY OF LAND. 


IV. n. 1- 

The notion 
that land 
is a free 
gift of 
nature 
while the 
produce of 
land is due 
to man’s 
work is a 
loose one: 
but there 
is a truth 
underlying 
it. 


§ 1. The requisites of production are commonly spoken 
of as land, labour and capital: those material things which 
owe their usefulness to human labour being classed under 
capital, and those which owe nothing to it being classed as 
land. The distinction is obviously a loose one: for bricks 
are but pieces of earth slightly worked up; and the soil of 
old settled countries has for the greater part been worked 
over many times by man, and owes to him its present form. 
There is however a scientific principle underlying the dis- 
tinction. While man has no power of creating matter, he 
creates utilities by putting things into a useful form^; and 
the utilities made by him can be increased in supply if there 
is an increased demand for them: they have a supply price. 
But there are other utilities over the supply of which he has 
no control; they are given as a fixed quantity by nature and 
have therefore no supply price. The term ‘'land” has been 
extended by economists so as to include the permanent 
sources of these utilities^; whether they are found in land, 
as the term is commonly used, or in seas and rivers, in sun- 
shine and rain, in winds and waterfalls. 

When we have inquired what it is that marks o£E land 
from those material things which we regard as products 

‘ See Book II. Chapter m. 

• In Ricardo’s famous phrase “the original and indestructible powers of the 
soil.” Von Thiinen, in a noteworthy discussion of the basis of the theory of rent, 
and of the positions which Adam Smith and Ricardo took with regard to it, 
speaks of “Der Boden an sich”; a phrase which unfortunately cannot be trans- 
lated, but which means the soil as it would be by itself, if not altered by the 
action of man (Der leolirU Staaty i. i. 5). 



MECHANICAL AND CHEMICAL CONDITIONS OF FERTILITY 


146 


of the land, we shall find that the fundamental attribute of iv, 11,2. 
land is its extension. The right to use a piece of land gives 
command over a certain space — a certain part of the earth’s 
surface. The area of the earth is fixed: the geometric 
relations in which any particular part of it stands to 
other parts are fixed. Man has no control over them; they 
are wholly unaffected by demand; they have no cost of 
production, there is no supply price at which they can be 
produced. 

The use of a certain area of the earth’s surface is a 
primary condition of anything that man can do; it gives 
him room for his own actions, with the enjoyment of the 
heat and the light, the air and the rain which nature assigns 
to that area; and it determines his distance from, and in a 
great measure his relations to, other things and other persons. 

We shall find that it is this property of ‘"land” which, though 
as yet insufficient prominence has been given to it, is the 
ultimate cause of the distinction which all writers on econo- 
mics are compelled to make between land and other things. 

It is the foundation of much that is most interesting and 
most difficult in economic science. 

Some parts of the earth’s surface contribute to production 
chiefly by the services which they render to the navigator: 
others are of chief value to the miner; others — though this 
selection is made by man rather than by nature — to the 
builder. But when the productiveness of land is spoken of 
our first thoughts turn to its agricultural use. 

§ 2. To the agriculturist an area of land is the means of Conditions 
supporting a certain amount of vegetable, and perhaps ulti- 
mately of animal, life. For this purpose the soil must have 
certain mechanical and chemical qualities. 

Mechanically, it must be so far yielding that the fine 
roots of plants can push their way freely in it; and yet it 
must be firm enough to give them a good hold. It must not 
err as some sandy soils do by affording water too free a pas- 
sage : for then it will often be dry, and the plant food will be 
washed away almost as soon as it is formed in the soil or put 
into it. Nor must it err, as stiff clays do. by not allowing 
the water a fairly free passage. For constant supplies of 



146 


THE FERTILITY OF LAND 


IV, 11,3. 


Chemical 
conditions 
of fertility. 


Man’s 
power of 
altering 
the cha- 
racter of 
the soil. 


fresh water, and of the air that it brings with it in its journey 
through the soil, are essential: they convert into plant food 
the minerals and gases that otherwise would be useless or 
even poisonous. The action of fresh air and water and of 
frosts are nature’s tillage of the soil; and even unaided they 
will in time make almost any part of the earth’s surface 
fairly fertile if the soil that they form can rest where it is, 
and is not torn away down-hill by rain and torrents as soon 
as it is formed. But man gives great aid in this mechanical 
preparation of the soil. The chief purpose of his tillage is to 
help nature to enable the soil to hold plant roots gently but 
firmly, and to enable the air and water to move about freely 
in it. And farmyard manure subdivides clay soils and 
makes them lighter and more open; while to sandy soils it 
gives a much needed firmness of texture, and helps them, 
mechanically as well as chemically, to hold the materials of 
plant food which would otherwise be quickly washed out of 
them. 

Chemically the soil must have the inorganic elements 
that the plant wants in a form palatable to it; and in some 
cases man can make a great change with but little labour. 
For he can then turn a barren into a very fertile soil by 
adding a small quantity of just those things that are needed; 
using in most cases either lime in some of its many forms, or 
those artificial manures which modern chemical science has 
provided in great variety: and he is now calling in the aid of 
bacteria to help him in this work. 

§ 3. By all these means the fertility of the soil can be 
brought under man’s control. He can by sufficient labour 
make almost any land bear large crops. He can prepare 
the soil mechanically and chemically for whatever crops he 
intends to grow next. He can adapt his crops to the nature 
of the soil and to one another; selecting such a rotation that 
each will leave the land in such a state, and at such a time of 
year, that it can be worked up easily and without loss of time 
into a suitable seed bed for the coming crop. He can even 
permanently alter the nature of the soil by draining it, or 
by mixing with it other soil that will supplement its deficien- 
cies. Hitherto this has been done only on a small scale; 



MECHANICAL AND CHEMICAL CONDITIONS OF FERTILITY 


147 


chalk and lime, clay and marl have been but thinly spread iv, n, 3. 
over the fields; a completely new soil has seldom been made 
except in gardens and other favoured spots. But it is pos- 
sible, and even as some think probable, that at some future 
time the mechanical agencies used in making railways and 
other great earthworks may be applied on a large scale to 
creating a rich soil by mixing two poor soils with opposite 
faults. 

All these changes are likely to be carried out more ex- 
tensively and thoroughly in the future than in the past. But 
even now the greater part of the soil in old countries owes 
much of its character to human action; all that lies just 
below the surface has in it a large element of capital, the 
produce of man’s past labour. Those free gifts of nature 
which Ricardo classed as the ‘‘inherent” and “indestructible” 
properties of the soil, have been largely modified; partly 
impoverished and partly enriched by the work of many 
generations of men. 

But it is different with that which is above the surface. 

Every acre has given to it by nature an annual income of 
heat and light, of air and moisture; and over these man has 
but little control. He may indeed alter the climate a little 
by extensive drainage works or by planting forests, or cutting 
them down. But, on the whole, the action of the sun and 
the wind and the rain are an annuity fixed by nature for each 
plot of land. Ownership of the land gives possession of this 
annuity: and it also gives the space required for the life and 
action of vegetables and animals; the value of this space 
being much affected by its geographical position. 

We may then continue to use the ordinary distinction Ordinal 
between the original or inherent properties, which the land 
derives from nature, and the artificial properties which 
owes to human action ; provided we remember that the first 
include the space-relations of the plot in question, and the 
annuity that nature has given it of sunlight and air and 
rain; and that in many cases these are the chief of the in- 
herent properties of the soil. It is chiefly from them that the 
ownership of agricultural land derives its peculiar signifi- 
cance, and the Theory of Bent its special character. 



148 


THE FERTILITY OP LAND 


IV. n, 4. 

The 
original 
qualities 
count for 
more and 
the arti- 
ficial for 
less in 
some cases 
than in 
others. 


In any 
case the 
extra 


§ 4. But the question how far the fertility of any soil is 
due to the original properties given to it by nature, and how 
far to the changes in it made by man, cannot be fully dis- 
cussed without taking account of the kind of produce raised 
from it. Human agency can do much more to promote the 
growth of some crops than of others. At one end of the 
scale are forest trees; an oak well planted and with plenty 
of room has very little to gain from man’s aid: there is no 
way of applying labour to it so as to obtain any considerable 
return. Nearly the same may be said of the grass on some 
rich river bottoms which are endowed with a rich soil and 
good natural drainage; wild animals feeding o£E this grass 
without man’s care will farm it nearly as well as he does; 
and much of the richest farm land in England (paying 
a rent of £6 an acre and upwards) would give to unaided 
nature almost as great a return as is got from it now. 
Next comes land which, though not quite so rich, is still 
kept in permanent pasture; and after this comes arable 
land on which man does not trust to nature’s sowing, but 
prepares for each crop a seed bed to suit its special wants, 
sows the seed himself and weeds away the rivals to it. The 
seeds which he sows are selected for their habit of quickly 
maturing and fully developing just those parts which are 
most useful to him; and though the habit of making this 
selection carefully is only quite modern, and is even now far 
from general, yet the continued work of thousands of years 
has given him plants that have but little resemblance to 
their wild ancestors. Lastly, the kinds of produce which 
owe most to man’s labour and care are the choicer kinds of 
fruits, flowers and vegetables, and of animals, particularly 
those which are used for improving their own breeds. For 
while nature left to herself would select those that are best 
able to take care of themselves and their offspring, man 
selects those which will provide him most quickly with the 
largest supplies of the things he most wants; and many 
of the choicest products could not hold their own at all 
without his care. 

Thus various then are the parts which man plays in 
aiding nature to raise the different kinds of agricultural 



ORIGINAL AND ARTIFICIAL PROPERTIES OF LAND 


149 


produce. In each case he works on till the extra return got iv, n, 4. 
by extra capital and labour has so far diminished that it will return to 
no longer remunerate him for applying them. Where this 
limit is soon reached he leaves nature to do nearly all the 
work; where his share in the production has been great, 
is because he has been able to work far without reaching 
this limit. We are thus brought to consider the law of 
diminishing return. 

It is important to note that the return to capital and The return 

• • is hsrs 

labour now under discussion is measured by the amount of measured 

the produce raised independently of any changes that may qJa^ntity 

meanwhile take place in the exchange value or price of 

produce; such, for instance, as might occur if a new railway 

had been made in the neighbourhood, or the population 

of the county had increased much, while agricultural produce 

could not be imported easily. Such changes will be of vital 

importance when we come to draw inferences from the law of 

diminishing return, and particularly when we discuss the 

pressure of increasing population on the means of subsistence. 

But they have no bearing on the law itself, because that has 

to do not with the value of the produce raised, but only 

with its amount^. 


* But see the latter part of IV. in. 8; also IV. xiii. 2, 



IV, III, 1. 

Provisional 
statement 
of the 
tendency 
to dimin- 
ishing 
return. 


Land may 
be under- 
cultivated, 
and then 
extra 

capital and 
labour will 
give an 
increasing 
return 
until a 
maximum 
rate has 
been 
reached, 
after which 
it will 
diminish 
again. 


CHAPTER III. 

THE FERTILITY OF LAND, CONTINUED. THE 
TENDENCY TO DIMINISHING RETURN. 

§ 1 . The law of or staiemep^t of tendency to Diminishing 
Return may be provisionally worded thus: 

An increase in the capital and labour applied in the cul 
tivation of land causes in general a less than proportionat 
increase in the amount of produce raised, unless it happens 
to coincide with an improvement in the arts of agriculture. 

We learn from history and by observation that every 
agriculturist in every age and clime desires to have the use 
of a good deal of land; and that when he cannot get it 
freely, he will pay for it, if he has the means. If he thought 
that he would get as good results by applying all his capital 
and labour to a very small piece, he would not pay for any 
but a very small piece. 

When land that requires no clearing is to be had for 
nothing, everyone uses just that quantity which he thinks 
will give his capital and labour the largest return. His 
cultivation is ‘‘extensive,’’ not “intensive.” He does not aim 
at getting many bushels of com from any one acre, for then 
he would cultivate only a few acres. His purpose is to get as 
large a total crop as possible with a given expenditure of seed 
and labour; and therefore he sows as many acres as he can 
manage to bring under a light cultivation. Of course he may 
go too far : he may spread his work over so large an area that 
he would gain by concentrating his capital and labour on a 
smaller space; and under these circumstances if he could get 
command over more capital and labour so as to apply more 
to each acre, the land would give him an Increasing Return] 



LAW OF DIMINISHING RETURN BASED ON EXPERIENCE 


161 


that is, an extra return larger in proportion than it gives to iv, m, i. 
his present expenditure. But if he has made his calculations 
rightly, he is using just so much ground as will give him the 
highest return; and he would lose by concentrating his capital 
and labour on a smaller area. If he had command over more 
capital and labour and were to apply more to hia present 
land, he would gain lees than he would by taking up more 
land; he would get a Diminishing Reiumy that is, an extra 
return smaller in proportion than he gets for the last applicar 
tions of capital and labour that he now makes, provided of 
course that there is meanwhile no perceptible improvement 
in his agricultural skill. As his sons grow up they will have 
more capital and labour to a,pply to land; and in order to 
avoid obtaining a diminishing return, they will want to culti- 
vate more land. But perhaps by this time all the neigh- 
bouring land is already taken up, and in order to get more 
they must buy it or pay a rent for the use of it, or migrate 
where they can get it for nothing^. 

This tendency to a diminishing return was the cause of Wer^it 
Abraham’s parting from Lot^, and of most of the migrations every 
of which history tells. And wherever the right to cultivate gave 
land is much in request, we may be sure that the tendency 
to a diminishing return is in full operation. Were it not 
for this tendency every farmer could save nearly the whole of capital and 
his rent by giving up all but a small piece of his land, and ^aU 
bestowing all his capital and labour on that. If all the land, 
capital and labour which he would in that case apply to it, 
gave as good a return in proportion as that which he now 
applies to it, he would get from that plot as large a produce 
as he now gets from his whole farm; and he would make a 
net gain of all his rent save that of the little plot that he 
retained. 

It may be conceded that the ambition of farmers ctftoa 


^ Increofflng Ktum in the earEer stages arises partly from economy of organ- 
ization, similar to that which gives an advantage to- manufacture on a lax^e scale. 
But it is also partly due to the fact that where land is very slightly cultivated 
the farmer’s crops are apt to be smothered by nature’s crops of weeds. The relation 
between Diminishing and Increasing Return i& discusMd further in last ^laptor 
of this Book. 

* '*The land was not able to bear them, that they might dwell together: for 
thaiz substance was great, so that they couM not dwell together.” Genesis xiii. 6. 



162 


THE FERTILITY OF LAND 


IV, in, 1. leads them to take more land than they can properly manage : 
and indeed almost every great authority on agriculture from 
Arthur Young downwards, has inveighed against this mis- 
take. But when they tell a farmer that he would gain by 
applying his capital and labour to a smaller area, they do not 
necessarily mean that he would get a larger gross produce. 
It is sufficient for their argument that the saving in rent 
would more than counterbalance any probable diminution of 
the total returns that he got from the land. If a farmer 
pays a fourth of his produce as rent, he would gain by con- 
centrating his capital and labour on less land, provided the 
extra capital and labour applied to each acre gave anything 
more than three-fourths as good a return in proportion, as he 
got from his earlier expenditure. 

Improved Again, it may be granted that much land, even in a 
may enable Country as advanced as England, is so unskilfully cultivated 
“ Poland could be made to give more than double its present 

profitably ^ gross produce if twice the present capital and labour were 
appUed. applied to it skilfully. Very likely those are right who 
maintain that if all English farmers were as able, wise and 
energetic as the best are, they might profitably apply twice 
the capital and labour that is now applied. Assuming rent 
to be one-fourth of the present produce, they might get seven 
hundredweight of produce for every four that they now get: 
it is conceivable that with still more improved methods they 
might get eight hundredweight, or even more. But this 
does not prove that, as things are, further capital and labour 
could obtain from land an increasing return. The fact 
remains that, taking farmers as they are with the skill and 
energy which they actually have, we find as the result of 
universal observation that there is not open to them a short 
road to riches by giving up a great part of their land, by 
concentrating all their capital and labour on the remainder, 
and saving for their own pockets the rent of all but that 
remainder. The reason why they cannot do this is told in 
the law of diminishing return; that return being measured, 
as has already been said by its quantity, not its exchange 
value. 

We may now state distinctly the limitations which were 



LAW OF DIMINISHING RETURN 


163 


implied under the words “in general” in our provisional iv,ni, 2. 
wording of the law. The law is a statement of a tendency 
which may indeed be held in check for a time by improve- 
ments in the arts of production and by the fitful course 
of the development of the full powers of the soil; but which 
must ultimately become irresistible if the demand for pro- 
duce should increase without limit. Our final statement of 
the tendency may then be divided into two parts, thus: — 

Although an improvement in the arts of agriculture may Final 
raise the rate of return which land generally affords to any oAhe 
given amount of capital and labour; and although the 
capital and labour already applied to any piece of land 
may have been so inadequate for the development of its full 
powers, that some further expenditure on it even with the 
existing arts of agriculture would give a more than propor- 
tionate return; yet these conditions are rare in an old 
country: and, except when they are present, the application 
of increased capital and labour to land will add a less than 
proportionate amount to the produce raised, unless there be 
meanwhile an increase in the skill of the individual cultivator. 
Secondly, whatever may be the future developments of the 
arts of agriculture, a continued increase in the application 
of capital and labour to land must ultimately result in a 
diminution of the extra produce which can be obtained by a 
given extra amount of capital and labour. 

§ 2. Making use of a term suggested by James Mill, we a dose of 
may regard the capital and labour applied to land as con- laboiw!^"^ 
sisting of equal successive doses^. As we have seen, the 
return to the first few doses may perhaps be small and a 
greater number of doses may get a larger proportionate 
return; the return to successive doses may even in ex- 
ceptional cases alternately rise and fall. But our law states 
that sooner or later (it being always supposed that there is 
meanwhile no change in the arts of cultivation) a point will 
be reached after which all further doses will obtain a less 
proportionate return than the preceding doses. The dose is 
always a combined dose of labour and capital, whether it is 
applied by a peasant owner working unaided on his own 

^ As to this term see the Note at the end of the chapter. 



154 


THE FERTILITY OF LAND 


IF, MI, 2. Land, or at the charges of a capitalist farmer who does no 
manual labour himself. But in the latter case the main 
body of the outlay presents itself in the form of money; and 
when discussing the business economy of farming in relation 
to English conditions, it is often convenient to consider the 
labour converted at its market value into a money equivalent, 
and to speak of doses of capital simply, rather than of doses 
of labour and capital. 

Marginal The dose wMch Only just remunerates the cultivator may 
marginal be said to be the marginal dose, and the return to it the 
l^ai^nof return. If there happens to be in the neighbour- 

cultivation, ^ood land that is cultivated but only just pays its expenses, 
and so gives no surplus for rent, we may suppose this dose 
applied to it. We can then say that the dose applied to it 
is applied to land on the margin of cultivation, and this 
way of speaking has the advantage of simplicity. But it is 
not necessary for the argument to suppose that there is any 
such land: what we want to fix our minds on is the return 
to the marginal dose; whether it happens to be applied to 
poor land or to rich does not matter; all that is necessary 
ifl that it should be the last dose which can profitably be 
applied to that land^. 

Tho When we speak of the marginal, or the ‘‘last’* dose ap- 

doseisnot plied to the land, we do not mean the last in time, we mean 
that dose which is on the margin of profitable expenditure; 
in time. tjiat is, which is applied so as just to give the ordinary returns 
to the capital and labour of the cultivator, without affording 
any surplus. To take a concrete instance, we may suppose a 
farmer to be thinking of sending the hoers over a field once 
more; and after a little hesitation he decides that it is 
worth his while, but only just worth his while to do it. The 
dose of capital and labour spent on doing it, is then the last 
dose in our present sense, though there are many doses still 
to be applied in reaping the crop. Of course the return to 
this last dose cannot be separated from the others; but we 
ascribe to it all that part of the produce which we believe 

^ Ripardo was well aware of this: though h§ did iK>i emphasize it enough. 
Those opponents of his doctrine who have supposed that it has no application to 
places where all the land pays a rent, have mistaken the nature ot his argument. 



THE CULTIVATOR’S SURPLUS PRODUCE 166 

would not have been produced if the farmer had decided iv, m, 2. 
against the extra hoeing^. 

Since the return to the dose on the margin of cultivation 
just remunerates the cultivator, it follows that he will be 
just remunerated for the whole of his capital and labour by 
as many times the marginal return as he has applied doses 
in all. Whatever he gets in excess of this is the surplus Surplus 
produce of the land. This surplus is retained by the culti- 
vator if he owns the land himself^. 

* An illustration from recorded experiments may help to make clearer the 
notion of the return to a marginal dose of capital and labour. The Arkansas 
experimental station (see The TimeSy 18 Nov. 1889) reported that four plots 
of an acre each were treated exactly alike except in the natter of ploughing and 
harrowing, with the following result: — 


Plot. 

Cultivation. 

Crop yields 
busfiels per 
acre. 

1 

Ploughed once 

16 

2 

Ploughed once and harrowed once 

m 

3 

Ploughed twice and harrowed once 

21f 

4 

Ploughed twice and harrowed twice 

23i 


This would show that the dose of capital and labour applied in harrowing 
a second time an acre which had already been ploughed twice gave a return 
of 1^ bushels. And if the value of these bushels, after allowing for expenses 
of harvesting, etc. just replaced that dose with profits, then that dose was a 
marginal one; even though it was not the last in point of time, since those spent 
on harvesting must needs come later. 

* Let us seek a graphical illustration. It is to be remembered that graphical 
illustrations are not proofs. They are merely pictures corresponding very roughly 
to the main conditions of certain real problems. They obtain clearness of outline, 
by leaving out of account many considerations which vary from one practical 
problem to another, and of which the farmer must take full account in his 
own special case. If on any given field there were expended a capital of £50, a 
certain amount of produce would be raised fronj it: a certain amount larger than 
the former would be raised if there were expended on it a capital of £51. The 
difference between these two amounts may be regarded as the produce due to the 
fifty-first pound; and if wo suppose the capital to be applied in successive doses 
of £1 each we may speak of this difference as the produce due to the fifty-first 
dose. Let the doses be represented in order by successive equal divisions of the 
line OD. Let there now be drawn from the division of 
this line representing the fifty-first dose My a line MP 
at right angles to ODy in thickness equal to the length 
of one of the divisions, and such that its length repre- 
sents the amount of the produce due to the fifty-first 
dose. Suppose this done for each separate division up 
to that corresponding to the last dose which it is foimd 
profitable to put on the land. Let this last dose be the 
noth at Dy and DC the corresponding return that only just remunerates the farmer. 
The extremities of such lines will lie on a curve A PC. The gross produce will 





166 


IV, III, 2. 
This 

description 
of surplus 
produce is 
not a 
theory of 
rent. 


Ricardo 
confined 
his atten- 
tion to the 
circum- 
stances of 
an old 
country. 


THE FERTILITY OF LAND 

It is important to note that this description of the nature 
of surplus produce is not a theory of rent: we shall not 
be ready for that till a much later stage. All that can be 
said here, is that this surplus produce may, under certain 
conditions, become the rent which the owner of the land can 
exact from the tenant for its use. But, as we shall see here- 
after, the full rent of a farm in an old country is made up of 
three elements: the first being due to the value of the soil 
as it was made by nature; the second to improvements made 
in it by man; and the third, which is often the most impor- 
tant of all, to the growth of a dense and rich population, and 
to facilities of communication by public roads, railroads, etc. 

It is to be noted also that in an old country it is impossible 
to discover what was the original state of the land before it 
was first cultivated. The results of some of man’s work are 
for good and evil fixed in the land, and cannot be distin- 
guished from those of nature’s work: the line of division is 
blurred, and must be drawn more or less arbitrarily. But 
for most purposes it is best to regard the first difiGiculties of 
coping with nature as pretty well conquered before we begin 
to reckon the farmer’s cultivation. Thus the returns that 
we count as due to the first doses of capital and labour are 
generally the largest of all, and the tendency of the return to 
diminish shows itself at once. Having English agriculture 
chiefly in view, we may fairly take, as Ricardo did, this as the 
typical case^. 

be represented by the sum of these lines: i.e., since the thickness of each line 
is equal to the length of the division on which it stands, by the area ODCA» 
Let CGH be drawn parallel to DO, cutting PM in G\ then MG is equal to CD; 
and since DC just remunerates the farmer for one dose, MG will just remunerate 
him for another; and so for all the portions of the thick vertical lines cut o£F 
between OD and HC. Therefore the sum of these, that is, the area ODCH, 
represents the share of the produce that is required to remunerate him; while 
the remainder, AHGCPA, is the surplus produce, which under certain conditions 
becomes the rent. 

‘ That is, we may substitute (fig. 11) the dotted line BA* for BA and regard 
A’ BBC as the typical curve for the return to capital and labour applied in 
English agriculture. No doubt crops of wheat and some other annuals cannot be 
raised at all without some considerable labour. But natural grasses which sow 
themselves will yield a good return of rough cattle to scarcely any labour. 

It has already been noticed (Book m. ch. m. § 1), the law of diminishing 
return bears a close analogy to the law of demand. The return which land gives 
to a dose of capital and labour may be regarded as the price which land offers for 
that dose. Land’s return to capital and labour is, so to speak, her effective demand 



ORDER OF FERTILITY CHANGES WITH CIRCUMSTANCES 


157 


§ 3. Let us next inquire on what depends the rate of iv, m, 3. 
diminution or of increase of the returns to successive doses of The 
capital and labour. We have seen that there are great varia- oi^ature’s 
tions in the share of the produce which man may claim , 

. capitaJa«« 

the additional result of his own work over what unaided labour 


nature would have produced; and that man’s share is much s5i and 
larger with some crops and soils and methods of cultivation 
than with others. Thus broadly speaking it increases as we 
pass from forest to pasture land, from pasture to arable, and 
from plough land to spade land; and this is because the rate 
of diminution of the return is as a rule greatest in forests, 
rather less in pasture, still less in arable land, and least of all 
in spade land. 

There is no absolute measure of the richness or fertility Tho 
of land. Even if there be no change in the arts of production, 
a mere increase in the demand for produce may invert the 
order in which two adjacent pieces of land rank as regards 
fertility. The one which gives the smaller produce, whencircum- 

8lb&l^C0S» 

both are uncultivated, or when the cultivation of both is 
equally slight, may rise above the other and justly rank as 
the more fertile when both are cultivated with equal tho- 
roughness. In other words, many of those lands which are 
the least fertile when cultivation is merely extensive, become 
among the most fertile when cultivation is intensive. For 
instance, self-drained pasture land may give a return large in 
proportion to a very slight expenditure of capital and labour, 


for them: her return to any dosp is her demand price for that dose, and the Jist 
of returns that she will give to successive doses may thus be regarded as her 
demand schedule: but to avoid confusion we shall call it her “Return Schedule.” 
Corresponding to the case of the land in the text is that of a man who may be 
willing to pay a larger proportionate price for a paper that would cover the whole 
of the walls of his room than for one that would go only half way; and then his 
demand schedule would at one stage show an increase and not a diminution of 
demand price for an increased quantity. But in the aggregate demand of many 
individuals these unevennesses destroy one another; so that the aggregate 
demand schedule of a group of people always shows the demand price as falling 
steadily with every increase in the amount offered. In the same way, by grouping 
together many pieces of land we might obtain a return schedule that would show 
a constant diminution for every increase of capital and labour applied. But it is 
more easy to ascertain, and in some ways more important to take note of, the 
variations of individual demand in the case of plots of land than in the case of 
people. And therefore our typical return schedule is not drawn out so as to show 
as even and uniform a diminution of return as our typical demand schedule does 
of demand price. 



1B8 THE FERTILITY OP LAND 

IV, ni, 8. but a rapidly diminishing return to further expenditure: as 
population increases it may gradually become profitable to 
break up some of the pasture and introduce a mixed culti- 
vation of roots and grains and grasses; and then the return 
to further doses of capital and labour may diminish less 
quickly. 

Other land makes poor pasture, but will give more or 
less liberal returns to a great deal of capital and labour 
applied in tilling and in manuring it; its returns to the 
early doses are not very high, but they diminish slowly. 

Again, other land is marshy. It may, as did the fens of 
east England, produce little but osiers and wild fowl. Or, 
as is the case in many tropical districts, it may be prolific of 
vegetation, but so shrouded with malaria that it is difficult 
for man to live there, and still more to work there. In such 
cases the returns to capital and labour are at first small, but 
as drainage progresses, they increase; afterwards perhaps 
they again fall off^. 


* This case may be represented by diagrams. If the produce rises in real value 
in the ratio of OH' to QU (so that the amount required to remunerate the farmer 
for a dose of capital and labour has fallen from OH to 0//'), the surplus produce 
rises only to AH'C\ which is not very much greater than its old amount AHCy 
fig. 12, representing the first case. The second case is represented in fig. 13, 
where a similar change in the price of produce makes the new surplus produce 
AH'C about three times os large as the old surplus, AIIC; and the third in 
fig. 14. The earliest doses of capital and labour applied to the land give so poor a 
return, that it would not be worth while to apply them unless it were intended to 


Fig. (12), 



O Do' 


Fig. (13). 


Fig. (14), 




carry the cultivation further. But later doses give an increasing return which 
culminates at P, and afterwards diminishes. If the price to be got for produce is 
50 low that an amount OH'* is required to remunerate the cultivator for a dose of 
capital and labour, it will then be only just profitable to cultivate the land. For 
then cultivation will be carried as far as D"; there will be a deficit on the earlier 
doses represented by the area H"AE*\ and a surplus on the later doses repre- 
sented by the area E"PC"\ and as these two are about equal, the cultivation of 
the land so far will only just pay its way. But if the price of produce rises till 



FAVOURITB SOILS OF EARLY SETTLERS 169 

But when improvements of this kind have once been iv, m, 3. 
made, the capital invested in the soil cannot be removed; 
the early history of the cultivation is not repeated; and the 
produce due to further applications of capital and labour 
shows a tendency to diminishing return^. 

Similar though less conspicuous changes may occur on 
land already well cultivated. For instance, without being 
marshy, it may be in need of a little drainage- to take off 
the stagnant water from it, and to enable fresh water and 
air to stream through it. Or the subsoil may happen to be 
naturally richer than the soil at the surface : or again, though 
not itself rich, it may have just those properties in which 
the surface soil is deficient, and then a thorough system of 
deep steam-ploughing may permanently change the character 
of the land. 

Thus we need not suppose that when the return to extra 
capital and labour has begun to diminish, it will always 
continue to do so. Improvements in the arts of production 
may, it has always been understood, raise generally the 
return which can be got by any amount of capital and 
labour; but this is not what is meant here. The point is 
that, independently of any increase in his knowledge, and 
using pnly those methods with which he has long been 
familiar, a farmer finding extra capital and labour at his 
command, may sometimes obtain an increasing return even 
at a late stage in his cultivation^. 


OH is gufficient to remunerato the cultivator for a dose of capital and labour, the 
deficit on the earlier doses will sink to HAE^ and the surplus on the later doses 
will rise to EPC\ the net surplus (the true rent in case the land is hired out) will 
be the ©icess of EPC over liAE. Should the price rise further till OH' is 
sufficient to remunerate the cultivator for a dose of capital and labour, this net 
surplus will rise to the very large amount represented by the excess of E'PC 


over H'AE'. 

^ In such a case as this the earlier doses are pretty sure to be sunk in the 
land; and the actual rent paid, if the land is hired out, will then include profits 
on them in addition to the surplus produce or true rent thus shown. Pro- 
vision can easily be made in the diagrams for the returns due to the bndlord’s 
capital. 

* Of course his return may diminish and then mcrease I !■%. (15). 
and then diminish again; and yet again increase when he a| 
is in a position to carry out some further extensive change, 
as Was repres ent ed by fig. ll. But more e:ttreine instanctas, 
of the kind represent^ by fig. 16, are noi very rare. C 


P 



160 


THE FERTILITY OF LAND 


IV, m, 8. 


Early 
settlers 
often 
rightly 
avoid the 
land which 
an English 
farmer 
would be 
apt to 
select. 


Fertility 
if not 
absolute 
but relative 
to nlace 
ana time. 


It has been well said that as the strength of a chain is 
that of its weakest link, so fertility is limited by that element 
in which it is most deficient. Those who are in a hurry, will 
reject a chain which has one or two very weak links, however 
strong the rest may be: and prefer to it a much slighter 
chain that has no flaw. But if there is heavy work to be 
done, and they have time to make repairs, they will set the 
larger chain in order, and then its strength will exceed that 
of the other. In this we find the explanation of much that 
is apparently strange in agricultural history. 

The first settlers in a new country generally avoid land 
which does not lend itself to immediate cultivation. They 
are often repelled by the very luxuriance of natural vegeta- 
tion, if it happens to be of a kind that they do not want. 
They do not care to plough land that is at all heavy, how- 
ever rich it might become if thoroughly worked. They will 
have nothing to do with water-logged land. They generally 
select light land which can easily be worked with a double 
plough, and then they sow their seed broadly, so that the 
plants when they grow up may have plenty of light and air, 
and may collect their food from a wide area. 

When America was first settled, many farming operations 
that are now done by horse machinery were still done by 
hand; and though now the farmers have a strong preference 
for flat prairie land, free from stumps and stones, where their 
machines can work easily and without risk, they had then 
no great objection to a hill-side. Their crops were light in 
proportion to their acreage, but heavy in proportion to the 
capital and labour expended in raising them. 

We cannot then call one piece of land more fertile than 
another until we know something about the skill and enter- 
prise of its cultivators, and the amount of capital and labour 
at their disposal; and till we know whether the demand for 
produce is such as to make inteilsive cultivation profitable 
with the resources at their disposal. If it is, those lands will 
be the most fertile which give the highest average returns to 
a large expenditure of capital and labour; but if not, those 
will be the most fertile which give the best returns to the 
first few doses. The term fertility has no meaning except 



VARIATIONS IN RELATIVE VALUE OF DIFFERENT SOIIiS 


161 


with reference to the special circumstances of a particular 
time and place. 

But even when so limited there is some uncertainty as 
to the usage of the term. Sometimes attention is directed 
chiefly to the power which land has of giving adequate 
returns to intensive cultivation and so bearing a large total 
produce per acre; and sometimes to its power of yielding a 
large surplus produce or rent, even though its gross produce 
is not very large: thus in England now rich arable land is 
very fertile in the former sense, rich meadow in the latter. 
For many purposes it does not matter which of these senses 
of the term is understood: in the few cases in which it does 
matter, an interpretation clause must be supplied in the 
context^. 

§4. But further, the order of fertility of different soils 
is liable to be changed by changes in the methods of culti- 
vation and in the relative values of different crops. Thus 
when at the end of last century Mr Coke showed how to 
grow wheat well on light soils by preparing the way with 
clover, they rose relatively to clay soils; and now though 
they are still sometimes called from old custom ‘‘poor,’’ some 
of them have a higher value, and are really more fertile, 
than much of the land that used to be carefully cultivated 
while they were left in a state of nature. 

Again, the increasing demand in central Europe for wood 
to be used as fuel and for building purposes, has raised 
the value of the pine-covered mountain slopes relatively to 
almost every other kind of land. But in England this rise 
has been prevented by the substitution of coal for wood as 


^ If the price of produce is such that an amount of it OH (figs. 12, 13, 14) 
is required to pay the cultivator for one dose of capital and labour, the cultivation 
will be carried aa far as J9; and the produce raised, AODC, will be greatest in 
fig. 12, next greatest in fig. 13, and least in fig. 14. But if the demand for 
agricultural produce so rises that OH* is enough to repay the cultivator for a 
dose, the cultivation will be carried as far as D\ and the produce i*aised will 
be AOD'C\ which is greatest in fig. 14, next in fig. 13, and least in fig. 12. 
The contrast would have been even stronger if we had considered the surplus 
produce which remains after deducting what is sufficient to repay the cultivator, 
and which becomes under some conditions the rent of the land. For this is ARC 
in figs. 12 and 13 in the first case and AH*C* in the second; while in fig. 14 it 
is in the first case the excess of AODCPA over ODCH^ i.e. the excess of PEC 
over ARE; and in the second case the excess of PE'C' over AU'E\ 


M. 


IV, ni, 4 


Other 
causes of 
change in 
the relative 
values of 
different 
pieces of 
land. 


6 



m 


IV, ai, 4. 


Poorer 
soils rise 
in relative 
value 
as the 
pressure of 
population 
increases. 


THB FBETILITY OF LAHIB 


fud, and of iron for wood as a material for ship-bnilding, 
and lastly by England’^ special facilities for importing wood. 
Again, the cultivation of rice and jute often gives a very 
high value to lands that are too much covered with water 
to bear most other crops. And again, since the repeal of the 
Corn Laws the prices of meat and dairy produce have risen 
in England relatively to that of com. Those arable soils 
that would grow rich forage crops in rotation with com, rose 
relatively to the cold clay soils; and permanent pasture re- 
covered part of that great fall in value relatively to arable 
land, which had resulted from the growth of population^. 

Independently of any change in the suitability of the 
prevailing crops and methods of cultivation for special soils, 
there is a constant tendency towards equality in the value 
of different soils. In the absence of any special cause to 
the contrary, the growth of population and wealth will make 
the poorer soils gain on the richer. Land that was at one 
time entirely neglected is made by much labour to raise 
rich crops; its annual income of light and heat and air, 
is probably as good as those of richer soils: while its faults 
can be much lessened by labour^. 


^ Rogers {Six Centuries ef Work and Waffes, p. 73) caiciilates that rich 
meadow had about the same value^ estimated in grain, five or six centuries ago as it 
has now; but that the value of arable land, similarly estimated, has increased about 
fivefold in the same time. This is partly due to the great importance of hay at a 
time when ropts and other modem kinds of winter food for cattle were unknown. 

* Thus we may compare two pieces of land represented in figs. 16 and 17, with 
regard to which the law of 


(1C). 



- 




c' 



j\ 


Fig. (17). 


u' 


diminishing return acts in a 
similar way, so that their pro- 
duce curves have similar shapes, 
but the former has a higher fer- 
tility than the other for all de- 
grees of intensity of cultivation. 

The value of the land may gene- 
rally be represented by its surplus produce or rent, which is in each case 
represented by AJSO when OH is required to repay a dose of capital and labour; 
and by AH'C* when the growth of numbers and wealth have made OE* sufficient. 
It is clear that AE*C' in fig. 17 bears a more favourable comparison with AH*C* 
in fig. 16 than does AEC in fig. 17 with AEC in fig. 16. In the same way, though 
not to the same extent, the total produce AOD'C' in fig. 17 hears a more favour- 
ahl® comparison with AOD'C' in fig. 16, than does AODC in fig. 17 with AODC 
in fig. 16. (It is ingeniously argued in Wicksteed's Coordinates of Laws of 
Distribvtiony pp. 61, ^ that rent may be negative. Of course taxes may absoih 
rent: but land which will not reward the plough will grow trees or rough grass. 
See above, pp. 167, 8.) 

Leroy Beaulieu {H^artitvm dss Eidhetses^ chap, n.) has collected several facts 



GOOD CULTIVATION A RELATIVE TERM 


163 


As there is no absolute standard for fertility, so there is iv, m, 5. 
none of good cultivation. The best cultivation in the richest xhereisno 
parts of the Channel Islands, for instance, involves a lavish s|^a®ndard 
expenditure of capital and labour on each acre : for they are 
near good markets and have a monopoly of an equable and 
early climate. If left to nature the land would not be very 
fertile, for though it has many virtues, it has two weak links 
(being deficient in phosphoric acid and potash)’. But, partly 
by the aid of the abundant seaweed on its shores, these links 
can be strengthened, and the chain thus becomes exception- 
ally strong. Intense, or as it is ordinarily called in England 
‘‘good” cultivation, will thus raise £100 worth of early 
potatoes from a single acre. But an equal expenditure per 
acre by the farmer in Western America would ruin him; 
relatively to his circumstances it would not be good, but 
bad cultivation. 

§ 5. Ricardo’s wording of the law of diminishing return Ricardo’s 
was inexact. It is however probable that the inaccuracy was of^tb^fw 
due not to careless ' thinking but only to careless writing. ac^urTte. 
In any case he would have been justified in thinking that 
these conditions were not of great importance in the pe- 
culiar circumstances of England at the time at which he 
wrote, and for the special purposes of the particular practical 
problems he had in view. Of course he could not anticipate 
the great series of inventions which were about to open up 
new sources of supply, and, with the aid of free trade, to 
revolutionize English agriculture; but the agricultural 
history of England and other countries might have led 
him to lay greater stress on the probability of a change^* 

illustrating this tendency of poor lands to rise in value relatively to rich. He 
quotes the following figures, showing the rental in francs per hectare (2| acres) of 
five classes of land in several communes of the D^partements de I’Eure et de 
rOise in 1829 and 1852 respectively: — 

Class I. Class II. Class III, Class IV. Class V. 

A.D. 1829 58 48 34 20 8 

A.D. 1852 80 78 60 50 40 

* As Roscher says {PolUical Economy ^ Sect, clv.), “In judging Ricardo, it 
must not be forgotten that it was not his intention to write a text-book on the 
science of Political Economy, but only to communicate to those versed in it the 
result of his researches in as brief a manner as possible. Hence he writes So 
frequently making certain assumptions, and his words are to be extended to other 
only after due consideration, or rather re-written to suit the changed case.*’ 



164 


THE FERTILITY OF LAND 


IV, in, 6. 

Ricardo 
said that 
the richest 
lands were 
eultivated 
lirst; this 
is true in 
the sense 
in which he 
meant it: 


but it is 
apt to be 
misunder- 
stood, as it 
was by 
Carey. 


He stated that the first settlers in a new country invari- 
ably chose the richest lands, and that as population increased, 
poorer and poorer soils were gradually brought under culti- 
vation, speaking carelessly as though there were an absolute 
standard of fertility. But as we have already seen, where 
land is free, everyone chooses that which is best adapted for 
his own purpose, and that which will give him, all things 
considered, the best return for his capital and labour. He 
looks out, therefore, for land that can be cultivated at once, 
and passes by land that has any weak links in the chain of 
its elements of fertility, however strong it may be in some 
other links. But besides having to avoid malaria, he must 
think of his communication with his markets and the base 
of his resources; and in some cases the need for security 
against the attacks of enemies and wild beasts outweighs all 
other considerations. It is therefore not to be expected that 
the lands which were first chosen, should turn out always to 
be those which ultimately come to be regarded as the most 
fertile. Ricardo did not consider this point, and thus laid 
himself open to attacks by Carey and others, which, though 
for the greater part based on a misinterpretation of his posi- 
tion, have yet some solid substance in them. 

The fact that, in new countries, soils which an English 
farmer would regard as poor, are sometimes cultivated before 
neighbouring soils which he would regard as rich, is not 
inconsistent, as some foreign writers have supposed, with 
the general tenor of Ricardo’s doctrines. Its practical im- 
portance is in relation to the conditions under which the 
growth of population tends to cause increased pressure on 
the means of subsistence : it shifts the centre of interest from 
the mere amount of the farmer’s produce to its exchange 
value in terms of the things which the industrial population 
in his neighbourhood will ofEer for it^. 

* Carey claims to have proved that “in every quarter of the world cultivation 
has commenced on the sides of the hills where the soil was poorest, and where the 
natural advantages of situation were the least. With the growth of wealth and 
population, men have been seen descending from the high lands bounding the 
valley on either side, and coming together at its feet.” (Principles of Social 
Science^ chap. iv. §4.) He has even argued that whenever a thickly peopled 
country is laid waste, “ whenever population, wealth, and the power of association 
decline, it is the rich soil that is abandoned by men who Sy again to the poor 



CAREY’S CRITICISM OF RICARDO’S DOCTRINE 


166 


§6. Ricardo, and the economists of his time generally iv, in, 6. 
were too hasty in deducing this inference from the law of ButCarey 
diminishing return; and they did not allow enough for the 
increase of strength that comes from organization. But i^un^eirated 
fact every farmer is aided by the presence of neighbours the indirect 
whether agriculturists or townspeople^. Even if most of 
them are engaged like himself in agriculture, they gradually po^®iatioD 
supply him with good roads, and other means- of communi- 
cation: they give him a market in which he can buy at culture, 
reasonable terms what he wants, necessaries, comforts and 
luxuries for himself and his family, and all the various 
requisites for his farm work: they surround him with know- 
ledge: medical aid, instruction and amusement are brought 
to his door; his mind becomes wider, and his efficiency is in 
many ways increased. And if the neighbouring market town 
expands into a large industrial centre, his gain is much 
greater. All his produce is worth more; some things which 
he used to throw away fetch a good price. He finds new 
openings in dairy farming and market gardening, and with a 
larger range of produce he makes use of rotations that keep 
his land always active without denuding it of any one of the 
elements that are necessary for its fertility. 

Further, as we shall see later on, an increase of popu- 
lation tends to develop the organization of trade and 
industry; and therefore the law of diminishing return does 
not apply to the total capital and labour spent in a district 

ones” {Jh. ch. v. §3); the rich soils being rendered difficult and dangerous by the 
rapid growth of jungles which harbour wild beasts and banditti, and perhaps by 
malaria. The experience of more recent settlers in South Africa and elsewhere 
does not however generally support his conclusions, which are indeed based largely 
on facts relating to warm countries. But much of the apparent attractiveness of 
tropical countries is delusive: they would give a very rich return to hard work: 
but hard work in them is impossible at present, though some change in this 
respect may be made by the progress of medical and especially bacteriological 
science. A cool refreshing breeze is as much a necessary of vigorous life as 
food itself. Land that offers plenty of food but whose climate destroys energy, is 
not more productive of the raw material of human wellbeing, than land that 
supplies less food but has an invigorating climate. 

The late Duke of Argyll described the influence of insecurity and poverty in 
compelling the cultivation of the hills before that of the valleys of the Highlands 
was feasible, Scotland as it is and was^ 11. 74, 5. 

^ In a new country an important form of this assistance is to enable him 
to venture on rich land that he would have otherwise shunned, through fear of 
enemies or of malaria. 



166 


THE FEETIUTY OP LAND 


IV, m, 7. 


The value 
of fresh 
air, light, 
water, and 
beautiful 
scenery. 


The 

fertility of 
fisheries. 


A mine 
does not 
give a di> 
aainishing 

ip 


as sharply as to that on a single farm. Even when culti- 
vation has reached a stage after which each successive dose 
applied to a field would get a less return than the preceding 
dose, it may be possible for an increase in the population to 
cause a more than proportional increase in the means of 
subsistence. It is true that the evil day is only deferred: 
but it is deferred. The growth of population, if not checked 
by other causes, must ultimately be checked by the diffi- 
culty of obtaining raw produce; but in spite of the law 
of diminishing return, the pressure of population on the 
means of subsistence may be restrained for a long time to 
come by the opening up of new fields of supply, by the 
cheapening of railway and steamship communication, and 
by the growth of organization and knowledge. 

Against this must be set the growing difficulty of getting 
fresh air and light, and in some cases fresh water, in densely 
peopled places. The natural beauties of a place of fashionable 
resort have a direct money value which cannot be overlooked; 
but it requires some effort to realize the true value to men, 
women and children of being able to stroll amid beautiful 
and varied scenery. 

§7. As has already been said the land in economic 
phrase includes rivers and the sea. In river-fisheries, the 
extra return to additional applications of capital and labour 
shows a rapid diminution. As to the sea, opinions differ. 
Its volume is vast, and fish are very prolific; and some think 
that a practically unlimited supply can be drawn from the 
sea by man without appreciably affecting the numbers that 
remain there; or in other words, that the law of diminishing 
return scarcely applies at all to sea-fisheries: while others 
think that experience shows a falling-off in the productiveness 
of those fisheries that have been vigorously worked, especially 
by steam trawlers. The question is important, for the future 
population of the world will be appreciably affected as 
regards both quantity and quality, by the available supply 
of fish. 

The produce of mines again, among which may be 
reckoned quarries and brickfields, is said to conform to the 
law of diminishing return; but this statement is misleading. 



FISHBItlES AND MINES 


167 


It is true that we find continually increasing difficulty in iv,ni, 7. 
obtaining a further supply of minerals, except in so far as we thelame 
obtain increased power over nature’s stores through improve- 
meats in the arts of mining, and through better knowledge of 
the contents of the earth’s crust; and there is no doubt that, 
other things being equal, the continued application of capital 
and labour to mines will result in a diminishing rate of yield. 

But this yield is not a net yield, like the return of which we 
speak in the law of diminishing return. That return is part 
of a constantly recurring income, while the produce of mines 
is merely a giving up of their stored-up treasures. The 
produce of the field is something other than the soil; for 
the field, properly cultivated, retains its fertility. But the 
produce of the mine is part of the mine itself. 

To put the same thing in another way, the supply of 
agricultural produce and of fish is a perennial stream; 
mines are as it were nature’s reservoir. The more nearly a 
reservoir is exhausted, the greater is the labour of pumping 
from it; but if one man could pump it out in ten days, ten 
men could pump it out in one day: and when once empty, it 
would yield no more. So the mines that are being opened 
this year might just as easily have been opened many years 
ago : if the plans had been properly laid in advance, and the 
requisite specialized capital and skill got ready for the work, 
ten years’ supply of coal might have been raised in one year 
without any increased difficulty; and when a vein had once 
given up its treasure, it could produce no more. This 
difference is illustrated by the fact that the rent of a mine is 
calculated on a different principle from that of a farm. The 
farmer contracts to give back the land as rich as he found it: 
a mining company cannot do this; and while the farmer’s 
rent is reckoned by the year, mining rent consists chiefly of 
‘‘royalties” which are levied in proportion to the stores that 
are taken out of nature’s storehouse^. 

‘ As Hicardo says {Principles ^ chap, ii.) ‘*Tbe compertsation given (by the 
lessee} for the mine or quarry is paid for the value of the coal or stcHM which can 
be removed from them, and has no connection with the original or indeetructible 
powers of the land.*^ But both he and others seem sometimes to lose sight of 
these distinctions in discussing the law of diminishing return in its application to 
mines. Especially is this the case in Ricardo’s criticism of Adam Smith’s theory 
of rent {Principles ^ chap. ; 



168 


THE FERTILITY OF LAND 


IV, m, 7. 


But 

building 
land does 



ing return 
of con- 
venience as 
increased 
capital is 
spent on it. 


The 

elasticity 
of the 
notions of 
diminish- 
ing return 
and rent 
fore- 
shadowed. 


On the other hand, services which land renders to man, 
in giving him space and light and air in which to live 
and work, do conform strictly to the law of diminishing 
return. It is advantageous to apply a constantly increasing 
capital to land that has any special advantages of situation, 
natural or acquired. Buildings tower up towards the sky; 
natural light and ventilation are supplemented by artificial 
means, and the steam lift reduces the disadvantages of the 
highest floors; and for this expenditure there is a return of 
extra convenience, but it is a diminishing return. However 
great the ground rent may be, a limit is at last reached after 
which it is better to pay more ground rent for a larger area 
than to go on piling up storey on storey any further; just as 
the farmer finds that at last a stage is reached at which more 
intensive cultivation will not pay its expenses, and it is 
better to pay more rent for extra land, than to face the 
diminution in the return which he would get by applying 
more capital and labour to his old land^. From this it results 
that the theory of ground rents is substantially the same as 
that of farm rents. This and similar facts will presently 
enable us to simplify and extend the theory of value as given 
by Ricardo and Mill. 

And what is true of building land is true of many other 
things. If a manufacturer has, say, three planing machines 
there is a certain amount of work which he can get out of 
them easily. If he wants to get more work from them he 
must laboriously economize every minute of their time during 
the ordinary hours, and perhaps work overtime. Thus after 
they are once well employed, every successive application of 
effort to them brings him a diminishing return. At last the 
net return is so small that he finds it cheaper to buy a 
fourth machine than to force so much work out of his old 

‘ Of course the return to capital spent in building increases for the earlier 
doses. Even where land can be had for almost nothing, it is cheaper to build 
houses two stories high than one; and hitherto it has been thought cheapest to 
build factories about four stories high. But a belief is growing up in America, 
that where land is not very dear factories should be only two stories high, partly 
in order to avoid the evil effects of vibration, and of the expensive foundations 
and walls required to prevent it in a high building: that is, it is found that the 
return of accommodation diminishes perceptibly after the capital and labour 
required to raise two stories have been spent on the land. 



NOTE ON THE LAW OF DIMINISHING RETURN 


169 


machines: just as a farmer who has already cultivated his iv, m, 8. 
land highly finds it cheaper to take in more land than to 
force more produce from his present land. Indeed there are 
points of view from which the income derived from machinery 
partakes of the nature of rent: as will be shown in Book V. 


Note on the Law of Diminishing Eeturn. 

§ 8. The elasticity of the notion of diminishing return cannot be The 
fully considered here; for it is but an important detail of that large 
general problem of the economic distribution of resources in the notion of 
investment of capital, which is the pivot of the main argument of 
Book V. and indeed of a great part of the whole Volume. But a further 
few words about it seem now to be called for in this place, because 
much stress has recently been laid on it under the able and suggestive 
leadership of Professor Carver^. 

If a manufacturer expends an inappropriately large amount of 
his resources on machinery, so that a considerable part of it is 
habitually idle; or on buildings, so that a considerable part of his 
space is not weU filled; or on his office staff, so that he has to employ 
some of them on work that it is not worth what it costs; then his 
excessive expenditure in that particular direction will not be as 
remunerative as his previous expenditure had been; and it may be 
said to yield him a “diminishing return.” But this use of the phrase, 
though strictly correct is apt to mislead unless used with caution. 

For when the tendency to a diminisliing return from increased labour 
and capital applied to land is regarded as a special instance of the 
general tendency to diminishing return from any agent of production, 
applied in excessive proportion to the other agents, one is apt to take 
it for granted that the supply of the other factors can be increased. 

That is to say, one is apt to deny the existence of that condition — the 
fixedness of the whole stock of cultivable land in an old country — 
which was the main foundation of those great classical discussions of 
the law of diminishing return, which we have just been considering. 

Even the individual farmer may not always be able to get an additional 
ten or fifty acres adjoining his own farm, just when he wants them, 
save at a prohibitive price. And in that respect land differs from 
most other agents of production even from the individual point of 
view. This difference may indeed be regarded as of little account in 
regard to the individual farmer. But from the social point of view, 
from the point of view of the following chapters on population it is 
vital. Let us look into this. 

* 866 also the writings of Professors Bullock and Landry. 



170 


THE FEETILrry OF LAKB 


IV, in, 8. 


A di- 
minishing 
return 
results 


from an 
inappro- 
priate 
apportion- 
ment of 
appliances 
for pro- 
duction. 


In every phase of any branch of production there is some distribu- 
tion of resources between various expenditures which yields a better 
result than any other. The abler the man in control of any business, 
the nearer he will approach to the ideally perfect distribution; just 
as the abler the primitive housewife in control of a family’s stock of 
wool, the nearer she will approach to an ideal distribution of wool 
between the different needs of the family^. 

If his business extends he will extend his uses of each requisite of 
production in dtie proportion; but not, as has sometimes been said, 
proportionately; for instance the proportion of manual work to machine 
work, which would be appropriate in a small furniture factory would 
not be appropriate in a large one. If he makes the best possible 
apportionment of his resources, he gets the greatest (marginal) return 
from each appliance of production of which his business is capable. If he 
uses too much of any one he gets a diminishing return from it; because 
the others are not able to back it up properly. And this diminishing 
return is analogous to that which a farmer obtains, when he cultivates 
land so intensively that he obtains a diminishing return from it. If 
the farmer can get more land at the same rent as he has paid for the 
old, he will take more land, or else lie open to the imputation of being 
a bad business man: and this illustrates the fact that land from the 


point of view of the individual cultivator is simply one form of capital. 
But the But when the older economists spoke of the Law of Diminishing 

n^onal Return they were looking at the problems of agriculture not only from 

culture of the point of view of the individual cultivator but also from that of the 
peop^ed^ nation as a whole. Now if the nation as a whole finds its stock of 
country planing machines or ploughs inappropriately large or inappropriately 
nated"by redistribute its resources. It can obtain more of that in 

the fixity which it is deficient, while gradually lessening its stock of such things 
stoclforone superabundant: but it cannot do that in regard to land: it can 

of the chief cultivate its land more intensively, but it cannot get any more. And 
appliances. reason the older economists rightly insisted that, from the 

social point of view, land is not on exactly the same footing as those 
implements of production which man can increase without limit. 

No doubt in a new country where there is an abundance of rich 
land not yet brought under cultivation, this fixedness of the total stock 
of land is not operative. American economists often speak of the value. 


* In this he wiH make large use uf what is called belew tbe ^Substitution*^ of 
more for less appropriate means. Discussions bearing directly on this paragraph 
will be found in III. v. 1 — 3; IV. vii. 8; and xm. 2: V. ni. 3; iv. 1 — 4; v. 6 — 8; 
vni. 1 — 5; X. 3; VI. I. 7; and n. 6. 

The tendencies of diminishing utility and of diminishing return have their 
roots, the one in qualities of human nature, the other in the technical conditions 
of industry. But distributions of resources, to which they point, are governed 
by exactly similar laws. In Mathematical phrasei, the probtons in maxima and 
minima to which they give rise are expressed by the same general equations; 
BS may be seen bgr leference to Matbematical Note iClV. 



NOTE ON THE LAW OP DIMINISHING RETUKN 


171 


or rent, of land as varying with the land’s distance from good markets, IV, iii, 8. 
rather than with its fertility; because even now there is a great deal 
of rich land in their country which is not fully cultivated. And in 
like manner they lay but little stress on the fact that the diminishing 
return to labour and capital in general applied to the land by discreet 
farmers, in such a country as England, is not exactly on the same 
footing as the diminishing return to an inappropriate investment of 
their resources by indiscreet farmers or manufacturers in a dispropor- 
tionately large number of ploughs or planing machines.. 

It is true that when the tendency to diminishing return is general- Difficulty 
ized, the return is apt to be expressed in terms of value, and not 
of quantity. It must however be conceded that the older method dose of 
of measuring return in terms of quantity often jostled against the 
difficulty of rightly interpreting a dose of labour and capital without 
the aid of a money measure: and that, though helpful for a broad 
preliminary survey, it cannot be carried very far. 

But even the recourse to money fails us, if we want to bring to 
a common standard the productiveness of lands in distant times or 
places; and we must then fall back on rough, and more or less 
arbitrary modes of measurement, which make no aim at numerical 
precision, but will yet suffice for the broader purposes of history. We 
have to take account of the facts that there are great variations in the 
relative amounts of labour and capital in a dose: and that interest on 
capital is generally a much less important item in backward than in 
advanced stages of agriculture, in spite of the fact that the rate of 
interest is generally much lower in the latter. For most purposes it is 
probably best to take as a common standard a day’s unskilled labour 
of given efficiency: we thus regard the dose as made up of so much 
labour of different kinds, and such charges for the use and replacement 
of capital, as will together make up the value of, say, ten days’ such 
labour; the relative proportions of these elements and their several 
values in terms of such labour being fixed according to the special 
circumstances of each problem^. 

A similar difficulty is found in comparing the returns obtained by and of 
labour and capital applied under different circumstances. So long as 
the crops are of the same kind, the quantity of one return can be produce to 
measured off against that of another: but, when they are of different 
kinds, they cannot be compared till they are reduced to a common 
measure of value. When, for instance, it is said that land would give 
better returns to the capital and labour expended on it with one crop 
or rotation of crops than with another, the statement must be under- 
stood to hold only on the basis of the prices at the time. In such a 


^ The labour-part of the dose is of course current agricultural labour; the 
capital-part is itself also the product of labour in past times rendered by workers 
of many kinds and degrees, accompanied by “waiting.” 



172 


THE FERTILITY OF LAND 


IV, ni, 8. 


Different 
methods 
of book- 
keeping 
may class 
the same 
thing as 
capital or 
produce; 
out each 
must be 
consistent 
with itself. 


case we must take the whole period of rotation together, assuming the 
land to be in the same condition at the beginning and the end of the 
rotation; and counting on the one hand all the labour and capital 
applied during the whole period, and on the other the aggregate returns 
of all the crops. 

It must be remembered that the return due to a dose of labour 
and capital is not here taken to include the value of the capital itself. 
For instance, if part of the capital on a farm consists of two-year- old 
oxen, then the returns to a year’s labour and capital will include not 
the full weight of these oxen at the end of the year, but only the 
addition that has been made to it during the year. Again, when a 
farmer is said to work with a capital of £10 to the acre, this includes 
the value of everything that he has on the farm ; but the total volume 
of the doses of labour and capital applied to a farm during, say, a year, 
does not include the whole value of the fixed capital, such as machinery 
and horses, but only the value of their use after allowing for interest, 
depreciation and repairs; though it does include the whole value of the 
circulating capital, such as seed. 

The above is the method of measuring capital generally adopted, 
and it is to be taken for granted if nothing is said to the contrary; 
but another method is more suitable occasionally. Sometimes it is 
convenient to speak as though aU the capital applied were circu- 
lating capital applied at the beginning of the year or during it: and 
in that case everything that is on the farm at the end of the year 
is part of the produce. Thus, young cattle are regarded as a sort 
of raw material which is worked up in the course of time into fat 
cattle ready for the butcher. The farm implements may even be 
treated in the same way, their value at the beginning of the year 
being taken as so much circulating capital applied to the farm, and at 
the end of the year as so much produce. This plan enables us to 
avoid a good deal of repetition of conditioning clauses as to depreciation, 
etc., and to save the use of words in many ways. It is often the best 
plan for general reasonings of an abstract character, particularly if 
they are expressed in a mathematical form. 

The law of diminishing return must have occupied thoughtful 
men in every densely peopled country. It was first stated clearly by 
Turgot ((Euvres, ed. Daire i. pp. 420, 1), as Prof. Cannan has shown; 
and its chief applications were developed by Ricardo. 



CHAPTER IV. 


THE GROWTH OP POPULATION. 

§1. The production of wealth is but a means to the iv, iv, i. 
sustenance of man ; to the satisfaction of his wants ; and to potj^u^ion 
the development of his activities, physical, mental, and 
moral. But man himseK is the chief means of the pro- 
duction of that wealth of which he is the ultimate aim^: 
and this and the two following chapters will be given to 
some study of the supply of labour; i.e. of the growth of 
population in numbers, in strength, in knowledge, and in 
character. 

In the animal and vegetable world the growth of numbers The 
is governed by the tendency of individuals to propagate their nmnbera^ 
species on the one hand, and on the other hand by the is 
struggle for life which thins out the young before 
arrive at maturity. In the human race alone the conflict of conditions; 
these two opposing forces is comphcated by other influences. ^n*it is 
On the one hand regard for the future induces many indi- trld^tioM^ 
viduals to control their natural impulses; sometimes with 
the purpose of worthily discharging their duties as parents ; 
sometimes, as for instance at Rome under the Empire, for future, 
mean motives. And on the other hand society exercises 
pressure on the individual by religious, moral and legal 
sanctions, sometimes with the object of quickening, and 
sometimes with that of retarding, the growth of population. 

The study of the growth of population is often spoken of Thepro- 

j -Dx- 1 blemsof 

as though it were a modern one. But m a more or less population 
vague form it has occupied the attention of thoughtful men 
in all ages of the world. To its influence, often unavowed, 


» See IV. I. 1. 



174 


IV, IV, 1. 


Fluctua- 
tions of 
opinion 
on State 
encourage 
ment of 
large 
families. 


GROWTH OF POPULATION 

sometimes not even clearly recognized, we can trace a great 
part of the rules, customs and ceremonies that have been 
enjoined in the Eastern and Western world by law-givers, 
by moralists, and those nameless thinkers, whose far-seeing 
wisdom has left its impress on national habits. Among 
vigorous races, and in times of great military conflict, they 
aimed at increasing the supply of males capable of bearing 
arms; and in the higher stages of progress they have 
inculcated a great respect for the sanctity of human life; 
but in the lower stages, they have encouraged and even 
compelled the ruthless slaughter of the infirm and the aged, 
and sometimes of a certain proportion of the female children. 

In ancient Greece and Rome, with the safety-valve of the 
power of planting colonies, and in the presence of constant 
war, an increase in the number of citizens was regarded as 
a source of public strength; and marriage was encouraged by 
public opinion, and in many cases even by legislation: though 
thoughtful men were even then aware that action in the 
contrary sense might be necessary if the responsibilities of 
parentage should ever cease to be burdensome^. In later 
times there may be observed, as Roscher says^, a regular ebb 
and flow of the opinion that the State should encourage the 
growth of numbers. It was in full flow in England under the 
first two Tudors, but in the course of the sixteenth century 
it slackened and turned; and it began to ebb, when the 
abolition of the celibacy of the religious orders, and the more 
settled state of the country had had time to give a percept- 
ible impetus to population; the ellective deii^nd for labour 
having meanwhile been diminished by the increase of sheep 
runs, and by the collapse of that part of the industrial system 
which had been organized by the monastic establishments. 
Later on the growth of population was checked by that rise 

' Thus Aristotle (Politics^ n. 6) objects to Plato’s scheme for equalizing pro- 
perty and abolLsliing poverty on the ground that it would be unworkable unless 
the State exercised a firm control over the growth of numbers. And as Jowett 
points out, Plato hiiTiself was aware of this (see Laws, v. 740: also Aristotle, 
Politics^ vn. 16). The opinion, formerly held that the population of Greece declined 
from the seventh cwitury B.O., and that of Rome from the third, has recently been 
called in question, see Die Bevdlkerung des Altertums ” by Ddouard Meyer ha the 
Handworierbuch der Staaiswissenschaften, 

* Political Economy ^ { 254. 



HISTORY OF THE DOCTRINE OF POPULATION 


175 


in the standard of comfort which took effect in the general iv, rv, i. 
adoption of wheat as the staple food of Englishmen during 
the first half of the eighteenth centniy* At that time there 
were even fears, which later inquiries showed to be un- 
founded, that the population was actually diminishing. Petty^ 
had forestalled some of Carey’s and Wakefield’s arguments as 
to the advantages of a deijse population. Child had argued 
that “whatever tends to the depopulating of a cbuntry tends 
to the impoverishment of it”; and that “most nations in 
the civilized parts of the world are more or less rich or poor 
proportionably to the paucity or plenty of their people, and 
not to the sterility or fruitfulness of their land^.” And by 
the time that the world-struggle with France had attained 
its height, when the demands for more and more troops were 
ever growing, and when manufacturers were wanting more 
men for their new machinery; the bias of the ruling classes 
was strongly flowing in favour of an increase of population. 

So far did this movement of opinion reach that in 1796 Pitt 
declared that a man who had enriched his country with a 
number of children had a claim on its assistance. An Act, 
passed amid the military anxieties of 1806, which granted 
exemptions from taxes to the fathers of more than two 
children born in wedlock, was repealed as soon as Napoleon 
had been safely lodged in St Helena®. 

^ He argued that Holland is richer than it appears to be relatively to France, 
because its people have access to many advantages that cannot be had by those 
who live on poorer land, and are therefore more scattered. Rich land is better 
than coarse land of ttf^ same Rent.” Political Ariihmetick^ ch. i. 

• Discowrses on Trade^ ch. x. Harris, Essay on Coins^ pp. 32, 3, argues to a 
similar effect, and proposes to “encourage matrimony among the lower classes by 
giving some privileges to those who have children,” etc. 

• “Let us,” said Pitt, “make relief, in cases where there are a large number of 
children, a matter of right and an honour, instead of a ground for opprobrium and 
contempt. This will* make a large family a blessing and not a curse, and this will 
draw a proper line of distinction between those who are able to provide for 
themselves by labour, and those who after having enriched their country with a 
number of children have a claim on its assistance for their support.” Of course he 
desired “to discourage relief where it was not wanted.” Napoleon the First had 
offered to take under his own charge one member of any family which contained 
seven male children; and Louis XIV., his predecessor in the slaughter of men, had 
exempted from public taxes all those who married before the age of 20 or had 
more than ten legitimate children. A comparison of the rapid increase in the 
population of Germany with that of France was a chief motive of tbe order of the 
French Chamber in 1885 that education and board should be provided at the public 
expense for every seventh child in necessitous families: and in 1213 a law was 



176 


GROWTH OF POPULATION 


IV, IV, 2. 
The 

doctrines 
of recent 
econo- 
mists. 

The Phy- 
siocrats. 


§ .2 But during all this time there had been a growing 
feeling among those who thought most seriously on social 
problems, that an inordinate increase of numbers, whether 
it strengthened the State or not, must necessarily cause 
great misery: and that the rulers of the State had no right 
to subordinate individual happiness to the aggrandizement 
of the State. In France in particular a reaction was caused, 
as we have seen, by the cynical selfishness with which the 
Court and its adherents sacrificed the wellbeing of the 
people for the sake of their own luxury and military glory. 
If the humane sympathies of the Physiocrats had been able to 
overcome the frivolity and harshness of the privileged classes 
of France, the eighteenth century would probably not have 
ended in tumult and bloodshed, the march of freedom in 
England would not have been arrested, and the dial of 
progress would have been more forward than it is by the 
space of at least a generation. As it was, but little attention 
was paid to Quesnay’s guarded but forcible protest: — ‘‘one 
should aim less at augmenting the population than at 
increasing the national income, for the condition of greater 
comfort which is derived from a good income, is preferable to 
that in which a population exceeds its income and is ever in 
urgent need of the means of subsistence^.'* 


passed giving bounties under certain conditions to parents of large families. The 
British Budget Bill of 1909 allowed a small abatement of income tax for fathoi's 
of families. 

‘ The Physiocratic doctrine with regard to the tendency of population to 
increase up to the margin of subsistence may be given in Turgot’s words; — the 
employer “since he always has his choice of a great number of working men, will 
choose that one who will work most cheaply. Thus then the workers are com- 
pelled by mutual competition to lower their price; and with regard to every kind 
of labour the result is bound to be reached — and it is reached as a matter of fact — 
that the wages of the worker are limited to that which is necessary to procure his 
subsistence.” {Sur la formation et la distribution des richesses^ § vi.) 

Similarly Sir James Steuart says {Inquiry ^ Bk. i. ch. m.), “The generative 
faculty resembles a spring loaded with a weight, which always exerts itself in 
proportion to the diminution of resistance: when food has remained some time 
without augmentation or diminution, generation will carry numbers as high as 
possible; if then food comes to be diminished the spring is overpowered; the force 
of it becomes less than nothing, inhabitants will diminish at least in proportion to 
the overcharge. If, on the other hand, food be incretised, the spring which stood 
at 0, will begin to exert itself in proportion as the resistance diminishes; people 
will begin to be better fed; they will multiply, and in proportion as they increase 
in numbers the food will become scarce again.” Sir James Steuart was much 
under the influence of the Physiocrats, and was indeed in some respects imbued 



HISTORY OF THE DOCTRINE OF POPULATION 


177 


Adam Smith said but little on the question of population, 
for indeed he wrote at one of the culminating points of the 
prosperity of the English working classes; but what he does 
say is wise and well balanced and modern in tone. Accepting 
the Physiocratic doctrine as his basis, he corrected it by 
insisting that the necessaries of life are not a fixed and 
determined quantity, but have varied much from place to 
place and time to time; and may vary more^. But he did 
not work out this hint fully. And there was nothing to 
lead him to anticipate the second great limitation of the 
Physiocratic doctrine, which has been made prominent in our 
time by the carriage of wheat from the centre of America 
to Liverpool for less than what had been the cost of its 
carriage across England. 

The eighteenth century wore on to its close and the next 
century began; year by year the condition of the working 
classes in England became more gloomy. An astonishing 
series of bad harvests^, a most exhausting war^, and a change 
in the methods of industry that dislocated old ties, com^ 
bined with an injudicious poor law to bring the working 
classes into the greatest misery they have ever suffered, at 
all events since the beginning of trustworthy records of 
English social history^. And to crown all, well-meaning 
enthusiasts, chiefly under French influence, were proposing 
communistic schemes which would enable people to throw on 
society the whole responsibility for rearing their children®. 


with Continental rather than English notions of government: and his artificial 
schemes for regulating population seem very far oil from us now. See his Inquiry^ 
Bk. I. ch. xn., “0/ the great advantage of combining a well-digested Theory and 
a perfect Knowledge of Facts with the Practical Part of Government in order to 
make a People multiply P 

> See Wealth of Nations, Bk. r. ch. viii. and Bk. v. ch. ri. See also supra, 
Bk. II ch. IV. 

* The average price of wheat in the decade 1771-1780 in which Adam Smith 
wrote was 34s. 7d.; in 1781-1790 it was 37s. Id,; in 1791-1800 it was 63s. 6d.; in 
1801-1810 it was 83s. 11^?.; and in 1811-1820 it was 87s. Gd. 

* Early in the last century the Imperial taxes — for the greater part war 
taxes — amounted to one-fifth of the whole income of tiie country; whereas now 
they are not much more than a twentieth, and even of this a great part is spent 
on education and other benefits which Government did not then afford. 

* See below § 7 and above Bk. i. ch. ni. §§ 5, 6. 

‘ Especially Godwin in his Inquiry concerning Political Justice (1792). It is 
interesting to compare Malthus’ criticism of this Essay (Bk. m. ch. ii.) with 
Aristotle’s comments on Plato’s Republic (see especially Politics, ii. 6). 


IV, IV, 2. 

Adam 

Smith. 


The 

eighteenth 

century 

ended 

and the 

nineteenth 

began in 

gloom. 



178 


GROWTH OF POPtJLiiTION 


IV, IV, 3. 


Maltbus. 


His 

argument 
has three 
stages. 
The hrst. 


The 

second. 


The third. 


Thus while the recruiting sergeant and the employer of 
labour were calling for measures tending to increase the 
growth of population, more far-seeing men began to inquire 
whether the race could escape degradation if the numbers 
continued long to increase as they were then doing. Of 
these inquirers the chief was Malthus, and his Essay on the 
Principle of Population is the starting-point of all modern 
speculations on the subject. 

§ 3. Malthus’ reasoning consists of three parts, which 
must be kept distinct. The first relates to the supply of 
labour. By a careful study of facts he proves that every 
people, of whose history we have a trustworthy record, has 
been so prolific that the growth of its numbers would have 
been rapid and continuous if it had not been checked either 
by a scarcity of the necessaries of life, or some other cause, 
that is, by disease, by war, by infanticide, or lastly by volun- 
tary restraint. 

His second position relates to the demand for labour. 
Like the first it is supported by facts, but by a different set 
of facts. He shows that up to the time at which he wrote 
no country (as distinguished from a city, such as Rome or 
Venice) had been able to obtain an abundant supply of the 
necessaries of life after its territory had become very thickly 
peopled. The produce which Nature returns to the work of 
man is her effective demand for population : and he shows that 
up to this time a rapid increase in population when already 
thick had not led to a proportionate increase in this demand^. 

Thirdly, he draws the conclusion that what had been in 
the past, was likely to be in the future; and that the growth 


‘ But many of his critics suppose him tQ have stated his position much less 
unreservedly than he did; they have forgotten such passages as this: — “From a 
review of the state of society in former periods compared with the present I should 
certainly say that the evils resulting from the principle of population have rather 
diminished than increased, even under the disadvantage of an almost total igno- 
rance of their real cause. And if we can indulge the hope that this ignorance 
will be gradually dissipated, it does not seem unreasonable to hope that they will 
be still further diminished. The increase of absolute population, which will of 
course take place, will evidently tend but little to weaken this expectation, as 
everything depends on the relative proportions between population and food, and 
not on the absolute number of the people. In the former part of this work it 
appeared that the coimtries which possessed the fewest people often suffered the 
most from the effects of the principle of population.** Essay, 6k. iv. ch. zn. 



MALTHUS 


179 


of population would be checked by poverty or some other iv, iv,8. 
cause of suffering unless it were checked by voluntary 
restraint. He therefore urges people to use this restraint, 
and, while leading lives of moral purity, to abstain from 
very early marriages^. 

His position with regard to the supply of population, Later 
with which alone we are directly concerned in this chapter, affect the 
remains substantially valid. The changes which the course hiWcLd 
of events has introduced into the doctrine of population 
relate chiefly to the second and third steps of his reasoning, not of his 
We have already noticed that the English economists of the 
earlier half of last century overrated the tendency of an 

‘ In the first edition of his essay, 1798, Malthus gave his argument without any 
detailed statement of facts, though from the first he regartled it as needing to be 
treated in direct connection witii a study of facts; as is shown by his having told 
Pryme (who afterwards became the first Professor of Political Economy at 
Cambridge) “that his theory was first suggested to his mind in an argumentative 
conversation which he had with his fatiier on the state of some other coim tries” 

(Pryme’s Recollections^ p. 66). American experience showed that population if 
unchecked would double at least once in twenty-five years. He argued that a 
doubled population might, even in a country as thickly peopled as England was 
with its seven million inhabitants, conceivably though not probably double the 
subsistence raised from the English soil: but that labour doubled again would not 
suffice to double the produce again. “Let us then take this for our rule, though 
certainly far beyond the truth; and allow that the whole produce of the island 
might be increased every tw’enty-flve years [that is with every doubling of the 
population] by a quantity of subsistence equal to that which it at present 
produces”; or in other words, in an arithmetical progression. His desire to make 
himself clearly understood made him, as Wagner says in his excellent introduc- 
tion to the study of Population {Grundlegung, Ed. 3, p. 453), “put too sharp a 
point on his doctrine, and formulate it too absolutely.” Thus he got into the 
habit of speaking of production as capable of increasing in an arithmetical ratio: 
and many writers think that he attached importance to the phrase itself: whereas 
it was really only a short way of stating the utmost that he thought any reason- 
able person could ask him to concede. What he meant, stated in modem 
language, was that the tendency to diminishing return, which is assumed through- 
out his argument, would begin to operate sharply after the produce of the island 
had been doubled. Doubled labour might give doubled produce: but quadrupled 
labour would hardly treble it: octupled labour would not quadruple it. 

In the second edition, 1803, he based himself on so wide and careful a statement 
of facts as to claim a place among the founders of historical economics; he softened 
and explained away many of the “sharp points” of his old doctrine, though he did 
not abandon (as was implied in earlier editions of this work) the use of the phrase 
“arithmetical ratio.” In particular he took a le.ss despondent view of the future 
of the human race; and dwelt on the hope that moral restraint might hold 
population in chec’k, and that “vice and misery,” the old checks, might thus be 
kept in abeyance. Francis Place, who was not blind to his many faults, wrote in 
1822 an apology for him, excellent in tone and judgment Good accounts of 
his work are given in Bonar’s MaUhus and his Work^ Cannan’s Production and 
Dittributiony 1776-1848, and Nicholson’s Political Economy^ Bk. L ch. zn. 



180 


GROWTH OF POPULATION 


IV, IV, 4. 


Natwral 

Increase, 


Marriage 
affected 
by the 
climate, 


increasing population to press upon the means of subsistence ; 
and it was not Malthus’ fault that he could not foresee the 
great developments of steam transport by land and by sea, 
which have enabled Englishmen of the present generation 
to obtain the products of the richest lands of the earth at 
comparatively small cost. 

But the fact that he did not foresee these changes makes 
the second and third steps of his argument antiquated in 
form; though they are still in a great measure valid in 
substance. It remains true that unless the checks on the 
growth of population in force at the end of the nineteenth 
century are on the whole increased (they are certain to 
change their form in places that are as yet imperfectly 
civilized) it will be impossible for the habits of comfort 
prevailing in Western Europe to spread themselves over the 
whole world and maintain themselves for many hundred 
years. But of this more hereafter^. 

§ 4. The growth in numbers of a people depends firstly 
on the Natural Increase, that is, the excess of their births 
over their deaths; and secondly on migration. 

The number of births depends chiefly on habits relating 
to marriage, the early history of which is full of instruction; 
but we must confine ourselves here to the conditions of 
marriage in modern civilized countries. 

The age of marriage varies with the climate. In warm 
climates where childbearing begins early, it ends early, in 
colder climates it begins later and ends later 2; but in every 


' Taking the present population of the world at one and a half thousand 
millions; and assuming that its present rate of increase (about 8 per 1000 
annuaUy, see Ravenstein’s paper before the British Association in 1890) will 
continue, we find that in less than two hundred years it will amoimt to six 
thousand millions; or at the rate of about 200 to the square mile of fairly fertile 
land (Ravenstein reckons 28 million square miles of fairly fertile land, and 14 
millions of poor grass lands. The first estimate is thought by many to be too 
high: but, allowing for this, if the less fertile land be reckoned in for what it is 
worth, the result will be about thirty million square miles as assumed above). 
Meanwhile there will probably be great improvements in the arts of agriculture; 
and, if so, the pressure of population on the means of subsistence may be held in 
check for about two hundred years, but not longer. 

* Of course the length of a generation has itself some influence on the growth 
of population. If it is 25 years in one place and 20 in another; and if in each 
place population doubles once in two generations during a thousand years, the in- 
crease will be a million-fold in the first place, but thirty million-fold in the second. 



MARRIAGE-RATE 


181 


case the longer marriages are postponed beyond the age that iv, iv, 4. 
is natural to the country, the smaller is the birth-rate; the 
age of the wife being of course much more important in 
this respect than that of the husband^. Given the climate, and the 
the average age of marriage depends chiefly on the ease with 
which young people can establish themselves, and support 
a family according to the standard of comfort that prevails 
among their friends and acquaintances; and therefore it is 
different in different stations of life. 

In the middle classes a man’^ income seldom reaches its Middle 
maximum till he is forty or fifty years old; and the expense ma^ 
of bringing up his children is heavy and lasts for many years. JjJ'stiSed 
The artisan earns nearly as much at twenty-one as he everJ»^?“>*™ 

. *' early. 

does, unless he rises to a responsible post, but he does not 
earn much before he is twenty-one: his children are likely 
to be a considerable expense to him till about the age of 
fifteen; unless they are sent into a factory, where they may 
pay their way at a very early age; and lastly the labourer 
earns nearly full wages at eighteen, while his children begin 
to pay their own expenses very early. In consequence, the 
average age at marriage is highest among the middle classes: 
it is low among the artisans and lower still among the un- 
skilled labourers^. 


difficulty of 
supporting 
a family. 


* Dr Ogle {Statistical Journal, Vol. 53) calculates that if the average age of 
marriage of women in England were postponed five years, the number of children 
to a marriage, which is now 4*2 would fall to 3*1. Kor6si, basing himself on 
the facts of the relatively warm climate of Buda Pest, finds 18 — 20 the most 
prolific age for women, 24 — 26 that for men. But he concludes that a slight 
postponement of weddings beyond these ages is advisable mainly on the ground 
that the vitality of the children of women under 20 is generally small. See 
Proceedings of Congress of Hygiene and Demografhyf London 1892, and Statistical 
Journal, Vol. 57. 

* The term marriage in the text must be taken in a wide sense so as to include 
not only legal marriages, but all those informal unions which are sufficiently 
permanent in character to involve for several years at least the practical responsi- 
bilities of married life. They are often contracted at an early age, and not unfre- 
quently lead up to legal marriages after the lapse of some years. For this reason 
the avei'age age at marriage in the broad sense of the term, with which alone we 
are here concerned, is below the average age at legal marriage. The allowance 
to be made on this head for the whole of the working classes is probably con- 
siderable; but it is very much greater in the case of unskilled labourers than of 
any other class. The following statistics must be interpreted in the light of 
this remark, and of the fact that all English industrial statistics are vitiated 
by the want of sufficient care in the classification of the working classes in our 
official returns. The Kegistrar-Generars forty-ninth Annual Report states that 



182 


GROWTH OF POPULATION 


IV, IV, 4. 


Hindrances 
to early 
marriage in 
stationary 
rural 
districts. 


Unskilled labourers, when not so poor as to sufier actual 
want and not restrained by any external cause, have seldom, 
if ever, shown a lower power of increase than that of doubling 
in thirty years; that is, of multiplying a million-fold in six 
hundred years, a billion-fold in twelve hundred: and hence it 
might be inferred a priori that their increase has never gone 
on without restraint for any considerable time. This in- 
ference is confirmed by the teaching of all history. Through- 
out Europe during the Middle Ages, and in some parts of 
it even up to the present time, unmarried labourers have 
usually slept in the farmhouse or with their parents; while 
a married pair have generally required a house for them- 
selves: when a village has as many hands as it can well 
employ, the number of houses is not increased, and young 
people have to wait as best they can. 

There are many parts of Europe even now in which custom 
exercising the force of law prevents more than one son in 
each family from marrying; he is generally the eldest, but 
in some places the youngest: if any other son marries he 
must leave the village. When great material prosperity and 
the absence of all extreme poverty are found in old-fashioned 
comers of the Old World, the explanation generally lies in 
some such custom as this with all its -evils and hardships^. 
It is true that the severity of this custom may be tempered 

in certain selected districts the returns of marriages for 1884-5 were examined 
with the following results; the number after each occupation being the average 
age of bachelors in it at marriage, and the following number, in brackets, being 
the average age of spinsters who married men of that occupation: — Miners 24-06 
(22-46); Textile hands 24-38 (23-43); Shoemakers, Tailors 24-92 (24-31); Artisans 
25-35 (23-70); Labourers 25-56 (23-66); Commercial Clerks 2G-25 (24-43); Shop- 
keepers, Shopmen 26-67 (24-22); Farmers and sons 29*23 (26-91); Professional and 
Independent Class 31-22 (26-40). 

Dr Ogle, in the paper already referred to, shows that the marriage-rate is 
greatest generally in those parts of England in which the percentage of those women 
^tween 15 and 25 years of age who are industrially occupied is the greatest. This 
is no doubt due, as he suggests, partly the willingness of men to have their money 
incomes supplemented by those of their wives; but it may be partly due also to an 
excess of women of a marriageable age in those districts. 

^ Thus a visit to the valley Jachenau in the Bavarian Alps about 1880 found 
this custom still in full force. Aided by a great recent rise in the value of their woods, 
with regard to which they had pursued a farseeing policy, the inhabitants lived 
prosperously in large houses, the younger brothers and sisters acting as servants 
In their old homes or elsewhere. They were of a different race from the work- 
people in the neighbouring valle 3 rs, who lived poor and hard lives, but seemed to 
think that the Jachenau purchased its material prosperity at too great a cost. 



MARRIAGB-RATE 


183 


by the power of migration; but in the Middle Ages the free iv,iv,$. 
movement of the people was hindered by stem regulations. 

The free towns indeed often encouraged immigration from 
the country: but the rules of the gilds were in some respects 
almost as cruel to people who tried to escape from their 
old homes as were those enforced by the feudal lords them- 
selves^. 

§ 5. In this respect the position of the hired agricultural The^ 
labourer has changed very much. The towns are now always is often 
open to him and his children ; and if he betakes himself to peas^t^'^ 
the New World he is likely to succeed better than any other 
class of emigrants. But on the other hand the gradual rise 
in the value of land and its growing scarcity is tending to 
check the increase of population in some districts in which 
the system of peasant properties prevails, in which there 
is not much enterprise for opening out new trades or for 
emigration, and parents feel that the social position of their 
children will depend on the amount of their land. They 
incline to limit artificially the size of their families and 
to treat marriage very much as a business contract, seeking 
always to marry their sons to heiresses. Francis Galton 
pointed out that, though the families of English peers are 
generally large, the habits of marrying the eldest son to an 
heiress who is presumably not of a fertile stock, and some- 
times dissuading younger sons from marriage, have led to 
the extinction of many peerages. Similar habits among 
French peasants, combined with their preference for small 
families, keep their numbers almost stationary. 

On the other hand there seem to be no conditions more but not 
favourable to the rapid growth of numbers than those of American 
the agricultural districts of new countries. Land is to be^^"^®”* 
had in abundance, railways and steamships carry away the 
produce of the land and bring back in exchange implements 
of advanced types, and many of the comforts and luxuries of 
life. The ‘‘farmer,’" as the peasant proprietor is called in 
America, finds therefore that a large family is not a burden, 
but an assistance to him. He and they live healthy out-of- 
door lives; there is nothing to check but everything to 

^ See e.^. Rogei^ Six pp. 106, 7. 



184 


GROWTH OF POPULATION 


IV, IV, 6. stimulate the growth of numbers. The natural increase is 
aided by immigration; and thus, in spite of the fact that 
some classes of the inhabitants of large cities in America are, 
it is said, reluctant to have many children, the population 
has increased sixteen-fold in the last hundred years 


^ The extreme prudence of peasant proprietors under stationary conditions 
was noticed by Malthus; see his account of Switzerland {Essay j Bk. ii. ch. v.). 
Adam Smith remarked that poor Highland women frequently had twenty children 
of whom not more than two reached maturity {Wealth of Nations^ Bk. i. ch. viii.); 
and the notion that want stimulated fertility was insisted on by Doubleday, 
True Law of Populalion, See also Sadler, Law of Population. Herbert Spencer 
seemed to think it probable that the progress of civilization will of itself hold the 
growth of population completely in check. But Malthus’ remark, that the repro- 
ductive power is less in barbarous than in civilized races, has been extended by 
Darwin to the animal and vegetable kingdom generally. 

Mr Charles Booth {Statistical Journal^ 1893) has divided London into 27 districts 
(chiefly Registration districts); and arranged them in order of poverty, of over- 
crowding, of high birth-rate and of high death-rate. He finds that the four orders 
are generally the same. The excess of birth-rate over death-rate is lowest in the 
very rich and the very poor districts. 

The birth-rate in England and Wales is nominally diminishing at about an 
equal rate in both town and country. But the continuous migration of young 
persons from rural to industrial areas has considerably depleted the ranks of 
young married women in the rural districts; and, when allowance is made for this 
fact, we find that the percentage of births to women of childbearing ages is much 
higher in them than in the towns: as is shown in the following table published by 
the Registrar-General in 1907. 


Mean Annual Birth-rates in Urban and Rural Areas. 




Urban. 



20 large towns, with an aggregate population of 9,742,404 persons 
at the date of the Census of 1901. 


Calculated on tlie total 

Calculated on the female 


population. 

population, aged 15—45 years. 

Period 

Rate per 

1000 

Compared with 
rate in 1870-72 
taken as 100 

Rate per 

1000 

Compared with 
rate in 1870-72 
taken as 100 

1870-72 

36-7 

1000 

143-1 

100-0 

1880-82 

35*7 

97-3 

140-6 

98-3 

1890-92 

32-0 

87-2 

124-6 

87-1 

1900-02 

29-8 

81-2 

111-4 

77-8 



Rural. 



112 entirely rural registration districts, with an aggregate population 
of 1,330,319 persons at the date of the Census of 1901. 

1870-72 

31-6 

100-0 

158-9 

100-0 

1880-82 

30-3 

95-9 

153-5 

96-6 

1890-92 

27*8 

880 

135-6 

85-3 

1900-02 

260 

82-9 

120-7 

76-0 



BIRTH-RATE 


186 


On the whole it seems proved that the birth-rate is iv, iv, 6. 
generally lower among the well-to-do than among those who oeni^ 
make little expensive provision for the future of themselves 
and their families, and who live an active life: and that 
fecundity is diminished by luxurious habits of living. 
Probably it is also diminished by severe mental strain; 
that is to say, given the natural strength of the parents, 
their expectation of a large family is diminished by a great 
increase of mental strain. Of course those who do high 
mental work, have as a class more than the average of 
constitutional and nervous strength; and Galton has shown 
that they are not as a class unprolific. But they commonly 
marry late. 

§ 6. The growth of population in England has a more Popuia- 
clearly defined history than that in the United Kingdom, England, 
and we shall find some interest in noticing its chief move- 
ments. 

The restraints on the increase of numbers during the The 
Middle Ages were the same in England as elsewhere. In Ages. 
England as elsewhere the religious orders were a refuge 
to those for whom no establishment in marriage could be 


The movements of the population of France have been studied with exceptions 
care; and the great work on the subject by Levasseur, La JPopulation Frangaise^ 
is a mine of valuable information as regards other nations besides France. 
Montesquieu, reasoning perhaps rather a priori^ accused the law of primogeniture 
which ruled in his time in France of reducing the number of children in a family : 
and le Play brought the same charge against the law of compulsory division. 
Levasseur {l.c. Vol. in. pp. 171-7) calls attention to the contrast; and remarks 
that Malthus* expectations of the effect of the Civil Code on population were in 
harmony with Montesquieu’s rather than le Play’s diagnosis. But in fact the birth- 
rate varies much from one part of France to another. It is generally lower where 
a large part of the population owns land than where it does not. If however the 
Departments of France be arranged in groups in ascending order of the property 
left at death {valeurs iuccessorales par tHe d^habitant)^ the corresponding birth-rate 
descends almost uniformly, being 23 per hundred married women between 16 and 
50 years for the ten Departments in which the property left is 48 — 57 fr.; and 13*2 
for the Seine, where it is 412 fr. And in Paris itself the arrondissements inhabited 
by the well-to-do show a smaller percentage of families with more than two children 
than the poorer arrondissements show. There is much interest in the careful 
analysis which Levasseur gives of the connection between economic conditions and 
birth-rate; his general conclusion being that it is not direct but indirect, through 
the mutual influence of the two on manners and the habit of life {momrs). He 
appears to hold that, however much the decline in the numbers of the French 
relatively to surrounding nations may be regretted from the political and military 
points of view, there is much good mixed witli the evil in its influences on material 
comfort and even social progress. 



180 


GROWTH OF POPULATION 


IV, IT, 6. provided; and religious celibacy while undoubtedly acting 
in some measure as an independent check on the growth 
of population, is in the main to be regarded rather as a 
method in which the broad natural forces tending to restrain 
population expressed themselves, than as an addition to 
them. Infectious and contagious diseases, both endemic and 
epidemic, were caused by dirty habits of life which were 
even worse in England than in the South of Europe; and 
famines by the failures of good harvests and the difficulties 
of communication; though this evil was less in England 
than elsewhere. 

Country life was, as elsewhere, rigid in its habits; young 
people found it difficult to establish themselves until some 
other married pair had passed from the scene and made 
a vacancy in their own parish; for migration to another 
parish was seldom thought of by an agricultural labourer 
under ordinary circumstances. Consequently whenever 
plague or war or famine thinned the population, there were 
always many waiting to be married, who filled the vacant 
places; and, being perhaps younger and stronger than the 
average of newly married couples, had larger families^. 

There was however some movement even of agricultural 
labourers towards districts which had been struck more 
heavily than their neighbours by pestilence, by famine or 
the sword. Moreover artisans were often more or less on the 
move, and this was especially the case with those who were 
engaged in the building trades, and those who worked in 
metal and wood; though no doubt the ‘‘wander years” were 
chiefly those of youth, and after these were over the wanderer 
was likely to settle down in the place in which he was born. 
Again, there seems to have been a good deal of migration on 
the part of the retainers of the landed gentry, especially of 
the greater barons who had seats in several parts of the 
country. And lastly, in spite of the selfish exclusiveness 
which the gilds developed as years went on, the towns 
offered in En^and as elsewhere a refuge to many who could 
get no good openings for work and for marriage in their own 

^ Thu» we are told that after the Black Death of 1349 moit marriages were 
very fertile (Rogers, History of Agriculture and Pricet, VoL L p. 301). 



ENGLAND IN THE MIDDLE AGES 


187 


homes. In these various ways some elasticity was intro- 
duced into the rigid system of mediaeval economy; and 
population was able to avail itself in some measure of the 
increased demand for labour which came gradually with the 
growth of knowledge, the establishment of law and order, 
and the development of oceanic trade^. 

In the latter half of the seventeenth and the first half of 
the eighteenth century the central government exerted itself 
to hinder the adjustment of the supply of population in 
different parts of the country to the demand for it by Settle- 
ment laws, which made any one chargeable to a parish who 
had resided there forty days, but ordered that he might be 
sent home by force at any time within that period^. Land- 
lords and farmers were so eager to prevent people from 
getting a “settlement” in their parish that they put great 
difficulties in the way of building cottages, and sometimes 
even razed them to the ground. In consequence the agri- 
cultural population of England was stationary during the 

^ There is no certain knowledge to be had as to the density of population in 
England before the eighteenth century; but the following estimates, reproduced 
from Steffen {Geschichte der englischen Lohn-arbeiter^ i. pp. 463 ff.), are probably 
the best as yet available. Domesday Book suggests that in 1086 the population of 
England was between two, and two-and-a-half millions. Just before the Black 
Death (1348) it may have been between three-and-a-half, and four-and-a-half 
millions; and just afterwards two-and-a-balf millions. It began to recover quickly; 
but made slow progress between 1400 and 1550; it increavsed rather fast in the 
next hundred years, and reached five-and-a-balf millions in 1700. 

If we are to trust Harrison {Description of England^ Bk. n. ch. ivi.), the 
muster of men able for service in 1574 amounted to 1,172,674. 

The Black Death was England’s only very great calamity. She was not, like 
the rest of Europe, liable to devastating wars, such as the Thirty Years’ War, 
which destroyed more than half the population of Germany, a loss which it 
required a full century to recover. (See Kiimelin’s instructive article on Bevol- 
kerungslehre in Schonberg’s Handbuch.) 

• Adam Smith is justly indignant at this. (See Wealth of Nations, Bk. i. 
ch. X. Part n. and Book iv. ch. ii.) The Act recites (14 Charles II. o. 12, 
A.D. 1662) that “by reason of some defects in the law, poor people are not 
restrained from going from one parish to another, and thereby do endeavour to 
settle themselves in those parishes where there is the best stock, the largest 
wastes or commons to build cottages, and the most woods for them to bum and 
destroy; etc.” and it is therefore ordered “that upon complaint made... within 
forty days after any such person or persons coming, so as to settle as aforesaid, 
in any tenement under the yearly value of ten pounds... it shall be lawful for 
any two justices of the Peace... to remove and convey such person or persons to 
such parish where he or they were last legally settled.” Several Acts purporting 
to soften its harshness had been passed before Adam Smith’s time; but they had 
been ineffective. In 1795 however it was ordered that no one should bo removed 
until he became actually chargeable. 


IV, IV, 6. 


Settlement 

laws. 


Slow 

growth of 
population 
and rise 
in the 
standard 
of living in 
the first 
half of the 
eighteenth 
century; 



188 


GROWTH OF POPULATION 


IV, IV, 6. hundred years ending with 1760; while the manufactures 
were not yet sufficiently developed to absorb large numbers. 
This retardation in the growth of numbers was partly caused 
by, and partly a cause of, a rise in the standard of living; a 
chief element of which was an increased use of wheat in 
the place of inferior grains as the food of the common 
people^. 

chances in From 1760 onwards those who could not establish them- 
th^second home found little difficulty in getting employment 

in the new manufacturing or mining districts, where the 
demand for workers often kept the local authorities from 
enforcing the removal clauses of the Settlement Act. To 
these districts young people resorted freely, and the birth- 
rate in them became exceptionally high; but so did the 
death-rate also; the net result being a fairly rapid growth 
of population. At the end of the century, when Malthus 
wrote, the Poor Law again began to influence the age of 
marriage; but this time in the direction of making it unduly 
early. The sufferings of the working classes caused by a 
series of famines and by the French War made some measure 
of relief necessary; and the need of large bodies of recruits 
for the army and navy was an additional inducement to 
tender-hearted people to be somewhat liberal in their allow- 
ances to a large family, with the practical effect of making 
the father of many children often able to procure more 
indulgences for himself without working than he could have 
got by hard work if he had been unmarried or had only a 
small family. Those who availed themselves most of this 
bounty were naturally the laziest and meanest of the people, 
those with least self-respect and enterprise. So although 
there was in the manufacturing towns a fearful mortality, 
particularly of infants, the quantity of the people increased 
refonn of f^-st; but its quality improved little, if at all, till the passing 
lawth^ 1834. Since that time the rapid 

growth of growth of the town population has, as we shall see in the 

population ^ i i ' 

hMbeen next chapter, tended to increase mortality, but this has 
steady. been counteracted by the growth of temperance, of medical 

1 Some intoresting remarks on this subject are mode by Eden, History of ths 
Poor^ L pp. 660-4. 



ENGLAND IN THE EIGHTEENTH CENTURY 


189 


knowledge, of sanitation and of general cleanliness. Emigra- iv, iv, 7 
tion has increased, the age of marriage has been slightly raised 
and a somewhat less proportion of the whole population are 
married; but, on the other hand, the ratio of births to a 
marriage has risen^; with the result that population has 
been growing very nearly steadily^. Let us examine the 
course of recent changes a little more closely. 

§ 7. Early in this century, when wages were low and in the 
wheat was dear, the working classes generally spent more 
than half their income on bread : and consequently a rise in 
the price of wheat diminished marriages very much among 
them: that is, it diminished very much the number of goodness 
marriages by banns. But it raised the income of many harvest, 
members of the well-to-do classes, and therefore often in- 
creased the number of marriages by licence^. Since however 

‘ But this increase in the figures shown is partly due to improved registration 
of births. (Farr, Vital Statistics^ p. 97.) 

* The following tables show the growth of the population of England and 
Wales from the beginning of the eighteenth century. The figures before 1801 are 
computed from the registers of births and deaths, and the poll and hearth tax 
returns : those since 1801 from Census returns. It will be noticed that the numbers 
increased nearly as much in the twenty years following 1760 as in the preceding 
sixty years. The pressure of the great war and the high price of com is shown 
in the slow growth between 1790 and 1801; and the effects of indiscriminate poor 
law allowances, in spite of greater pressure, is shown by the rapid increase in the 
next ten years, and the stiU greater increase when that pressure was removed in 
the decade ending 1821. The third column shows the percentage which the increase 
during the preceding decade was of the population at the beginning of that 
decade. 


Year 

Population 
OOOs omitted 

Increase 
per cent. 

Tear 

Population 
OOOs omitted 

Increase 
per cent. 

1700 

6,475 


1801 

8,892 

2-5 

10 

5,240 

- 4-9* 

11 

10,164 

14-3 

20 

5,565 

6-2 

21 

12,000 

181 

80 

6,796 

4-1 

31 

13,897 

16-8 

40 

6,064 

4-6 

41 

15,909 

14-5 

60 

6,467 

6-6 

61 

17,928 

12-7 

60 

6,736 

41 

61 

20,066 

11-9 

70 

7,428 

10-3 

71 

22,712 

13-2 

80 

7,953 

7-1 

81 

25,974 

14-4 

90 

8,675 

81 

91 

29,002 

11*7 


1901 

32,527 

11-7 


* Decrease; but these early figures are untrustworthy. 


The great growth of emigration during recent years makes it important to 
correct the figures for the last three decades so as to show the ** natural increase,” 
viz. that due to the excess of births over deaths. The net emigration from the 
United Kingdom during the decades 1871-81 and 1881-91 was 1,480,000, and 
1,747,000 respectively. 

■ See Faiys 17th Annual Report for 1854 as Registrar-General, or the abstract 
of it in Vital Statistics (pp. 72 — 5). 



190 GROWTH OP POPULATION 

IV, IV, 7. these were but a small part of the whole, the net effect 
Later~ was to lowei the marriage-rate^. But as time went on, the 
Siuence of of wheat fell and wages rose, till now the working 
coi^OTciai classes spend on the average less than a quarter of their 
tionspre- incomes on bread; and in consequence the variations of 

dominated. . , -x i. j. * • j 

commercial prosperity have got to exercise a preponderating 
influence on the marriage-rate*. 

Since 1873 though the average real income of the 
population of England has indeed been increasing, its rate 
of increase has been less than in the preceding years, and 
meanwhile there has been a continuous fall of prices, and 
consequently a continuous fall in the money incomes of 
many classes of society. Now people are governed in their 
calculations as to whether they can afford to marry or not, 
more by the money income which they expect to be able 
to get, than by elaborate calculations of changes in its pur- 
chasing power. And therefore the standard of living among 
the working classes has been rising rapidly, perhaps more 
rapidly than at any other time in English history: their 
household expenditure measured in money has remained 
about stationary, and measured in goods has increased very 


‘ For instance, representing the price of wheat in shillings and the number of 
marriages in England and Wales in thousands, we have for 1801 wheat at 119 and 
marriages at 67, for 1803 wheat at 59 and marriages at 94; for 1805 the numbers 
are 90 and 80, for 1807 they are 75 and 84, for 1812 they are 126 and 82, for 
1815 they are 66 and 100, for 1817 they are 97 and 88, for 1822 they are 45 
and 99. 

■ Since 1820 the average price of wheat has seldom exceeded 605. and never 
755 . : and the successive inflations of commerce which culminated and broke in 1826, 
1836-9, 1848, 1856, 1866 and 1873 exercised an influence on the marriage-rate 
about equal with changes in the price of com. When the two causes act together 
the effects are very striking; thus between 1829 and 1834, there was a recovery of 
prosperity accompanied by a steady fall in the price of wheat and marriages rose 
from a hundred and four to a hundred and twenty-one thousand. The marriage- 
rate rose again rapidly between 1842 and 1845 when the price of wheat was a 
little lower than in the preceding years, and the business of the country was 
reviving; and again under similar circumstances between 1847 and 1853 and 
between 1862 and 1865. 

A comparison of the marriage-rate with the harvests in Sweden for the years 
1749 to 1883 is given by Sir Rawson Rawson in the Statistical Journal for 
December 1885. The harvest does not declare itself till part of the yearis tale 
of marriages is made up; and further the inequalities of harvests are to some 
extent compensated for by the storage of grain; and therefore the individual 
harvest figures do not correspond closely with the marriage-rate. But when 
several good or bad harvests come together, the effect in increasing br diminish' 
ing the marriage-rate is very clearly marked. 



ENQLAND m IHB SIM^TEESTK CENTURY 191 

fast. Meanwhile the priee of wheat has also fallen very iv,iv, 7. 
much^ and a marked fall in the marriage-rate for the whole 
country has often accompanied a marked fall in the price of 
wheat. The marriage-rate is now reckoned on the basis that 
each marriage involves two persons and should therefore 
count for two. The English rate fell from 17*6 per thousand 
in 1873 to 14*2 in 1886. It rose to 16*5 in 1899; in 1907 it 
was 16*8, but in 1908 only 14*9^. 

There is much to be learnt from the history of population Scotland, 
in Scotland and in Ireland. In the lowlands of Scotland 
a high standard of education, the development of mineral 
resources, and close contact with their richer English neigh- 
bours have combined to afEord a great increase of average 
income to a rapidly increasing population. On the other Ireland, 
hand, the inordinate growth of population in Ireland before 
t lie potato-famine in 1847, and its steady diminution since 
that time, will remain for ever landmarks in economic history. 

Comparing the habits of different nations^ we find that inter- 
in the Teutonic countries of Central and Northern Europe, vital 
the age of marriage is kept late, partly in consequence of the 
early years of manhood being spent in the army; but that it 
has been very early in Russia ; where, at all events under the 
old regime, the family group insisted on the son’s bringing 
a wife to help in the work of the household as early as 
possible, even if he had to leave her for a time and go to 

^ Statistics of exports are among the most convenient indications of the 
fluctuations of commercial credit and industrial activity: and in the article 
already quoted, Ogle has shown a correspondence between the marriage-rate 
and the exports per head. Compare diagrams in Vol. n. p. 12 of Levasseur’s 
La Population Fran^aise; and with regard to Massachusetts by Willcox in the 
Political Science Quarterly, Vol. vin. pp. 76 — 82. Ogle’s inquiries have been 
extended and corrected in a paper read by R. H, Hooker before the Manchester 
Statistical Society, in January 1898; who points out that if the marriage-rate 
fluctuates, the birth-rate during an ascending phase of the marriage-rate is apt 
to correspond to the marriage-rate not for that phase, but for the preceding phase 
when the marriage-rate was declining: and vice versd. “Hence the ratio of 
births to marriages declines when the marriage-rate is rising and rises when the 
marriage-rate falls. A curve representing the ratio of births to marriages will 
move inversely to the marriage-rate.” He points out that the decline in the 
ratio of births to marriages is not great, and is accounted for by the rapid decline 
of illegitimate births. The ratio of legitimate births to marriages is not declining 
perceptibly. 

* The following statements are based chiefly on statistics arranged by the late 
Signor Bodio, by M. Levasseur, La Populaiion FrangaUe, and by the English 
Hegistrar-Qeiieral in his Report for 1907. 



192 


GROWTH OF POPULATION 


IV, IV, 7. earn his living elsewhere. In the United Kingdom and 
America there is no compulsory service, and men marry 
early. In France, contrary to general opinion, early 
marriages on the part of men are not rare; while on the 
part of women they are more common than in any country 
for which we have statistics, except the Slavonic countries, 
where they are much the highest. 

The marriage-rate, the birth-rate and the death-rate are 
diminishing in almost every country. But the general 
mortality is high where the birth-rate is high. For instance, 
both are high in Slavonic countries, and both are low in the 
North of Europe. The death-rates are low in Australasia, 
and the “natural” increase there is fairly high, though the 
birth-rate is low and falling very fast. In fact its fall in the 
various States ranged from 23 to 30 per cent, in the period 
1881-19011. 

* Much instructive and suggestive matter connected with the subject of this 
chapter is contained in the Statistical Memoranda and Charts relating to Public 
Health and Social Conditions published by the Local Government Board in 190U 
[CkL 4671]. 



CHAPTER V. 


THE HEALTH AND STRENGTH OF THE POPULATION. 

§1. We have next to consider the conditions on which iv, v, i. 
depend health and strength, physical, mental and moral. 

They are the basis of industrial efficiency, on which the?^^®^®°^ , 
production of material wealth depends ; while conversely the efficiency, 
chief importance of material wealth lies in the fact that, 
when wisely used, it increases the health and strength, 
physical, mental and moral of the human race. 

In many occupations industrial efficiency requires little Physical 
else than physical vigour; that is, muscular strength, a good 
constitution and energetic habits. In estimating muscular, 
or indeed any other kind of strength for industrial purposes, 
we must take account of the number of hours in the day, 
of the number of days in the year, and the number of years 
in the lifetime, during which it can be exerted. But with 
this precaution we can measure a man’s muscular exertion 
by the number of feet through which his work would raise a 
pound weight, if it were applied directly to this use; or in 
other words by the number of “foot pounds” of work that 
he does^. 

' This measure can be applied directly to most kinds of navvies’ and porters* 
work, and indirectly to many kinds of agricultural work. In a controversy 
that was waged after the great agricultural lock-out as to the relative efficiency 
of unskilled labour in the South and North of England, the most trustworthy 
measure was found in the number of tons of material that a man would load into 
a cart in a day. Other measures have been found in the number of acres reaped 
or mown, or the number of bushels of com reaped, etc. : but these are unsatisfac- 
tory, particularly for comparing different conditions of agriculture: since the 
implements used, the nature of the crop and the mode of doing the work all vary 



194 


IV. V, 1. 

requires 
nenrous 
as well as 
muscular 
strength. 


HEALTH AND STRENGTH 

Although the power of sustaining great muscular exertion 
seems to rest on constitutional strength and other physical 
conditions, yet even it depends also on force of will, and 
strength of character. Energy of this kind, which may 
perhaps be taken to be the strength of the man, as distin- 
guished from that of his body, is moral rather than physical; 
but yet it depends on the physical condition of nervous 
strength. This strength of the man himself, this resolution, 
energy and self-mastery, or in short this vigour” is the 
source of all progress; it shows itself in great deeds, in great 
thoughts and in the capacity for true religious feeling^. 

Vigour works itself out in so many forms, that no simple 
measure of it is possible. But we are all of us constantly 
estimating vigour, and thinking of one person as having more 
“backbone,” more “stuff in him,” or as being “a stronger 
man” than another. Business men even in different trades, 
and University men even when engaged in different studies, 
get to estimate one another’s strength very closely. It soon 


widely. Thus nearly all comparisons between mediaeval and modem work and 
wages based on the wages of reaping, mowing, etc. are valueless until we have 
found means to allow for the efects of changes in the methods of agriculture. It 
costs for instance less labour than it did to reap by hand a crop that yields a 
hundred bushels of com; because the implements used are better than they were: 
but it may not cost less labour to reap an acre of com; because the crops are 
heavier than they were. 

In backward countries, particularly where there is not much use of horses or 
other draught animals, a great part of men^s and women’s work may be measured 
fairly well by the muscular exertion involved in it. But in England less than 
ono-sixth of the industrial classes are now engaged on work of this kind; while 
the force exerted by steam-engines alone is more than twenty times as much as 
could be exerted by the muscles of all Englishmen. 

^ This must be distinguished from nervousness, which, as a rule, indicates a 
general deficiency of nervous strength; though sometimes it proceeds from 
nervous irritability or want of balance. A man who has great nervous strength 
in some directions may have but little in others; the artistic temperament in par- 
ticular often develops one set of nerves at the expense of others: but it is the 
weakness of some of the nerves, not the strength of the others, that leads to 
nervousness. The most perfect artistic natures seem not to have been nervous; 
Leonardo da Vinci and Shakespeare for example. The term “nervous strength” 
corresponds in some measure to Heart in Engel’s great division of the elements 
of efficiency into (a) Body, {b) Reason, and (c) Heart (icz&, Verstand und Herz). 
Ha classifies activities according to the permutations a, ah^ ac, abc^ acb; 6a, 
be, boa, bac; c, ca, c6, eeib, eba: the order in each case being that of relative im- 
portance, and a letter being omitted where the corresponding element plays only 
a very small part. 

In the war of 1870 Berlin University students, who seemed to be weaker than 
the average soldier, were found to be able to bear fatigue better. 



FOOD AND OTHER MATERIAL NECESSARIES 


196 


becomes known if less strength is required to get a ‘‘first iv, r, 2, 3 . 
class’’ in one study than another. 

§ 2. In discussing the growth of numbers a little has The 
been said incidentally of the causes which determine length 0” cUma te 
of life : but they are in the main the same as those which 
determine constitutional strength and vigour, and they will 
occupy our attention again in the present chapter. 

The first of these causes is the climate. In warm countries 
we find early marriages and high birth-rates, and in conse- 
quence a low respect for human life: this has probably been 
the cause of a great part of the high mortality that is gener- 
ally attributed to the insalubrity of the climate^. 

Vigour depends partly on race qualities: but these, so 
far as they can be explained at all, seem to be chiefly due to 
climate^. 

§ 3. Climate has also a large share in determining the The 
necessaries of life; the first of which is food. Much depends 
on the proper preparation of food; and a skilled housewife 
with ten shillings a week to spend on food will often do more 
for the health and strength of her family than an unskilled 
one with twenty. The great mortality of infants among the 
poor is largely due to the want of care and judgment in 
preparing their food ; and those who do not entirely succumb 


* A warm climate impairs vigour. It is not altogether hostile to high 
intellectual and artistic work: but it prevents people from being able to endure 
very hard exertion of any kind for a long time. More sustained hard work can be 
done in the cooler half of the temperate zone than anywhere else; and most of all 
in places such as England and her counterpart New Zealand, where sea-breezes 
keep the temperature nearly uniform. The summer heats and winter colds of 
many parts of Europe and America, where the mean temperature is moderate, 
have the effect of shortening the year for working purposes by about two months. 
Extreme and sustained cold is found to dull the energies, partly perhaps because 
it causes people to spend much of their time in close and confined quarters: in- 
habitants of the Arctic regions are generally incapable of long-continued severe 
exertion. In England popular opinion has insisted that a “warm Yule-tide makes 
a fat churchyard”; but statistics prove beyond question that it has the opposite 
effect: the average mortality is highest in the coldest quarter of the year, and 
higher in cold winters than in warm. 

• Race history is a fascinating but disappointing study for the economist: for 
conquering races generally incorporated the women of the conquered; they often 
carried with them many slaves of both sexes during their migrations, and slaves 
were less likely than freemen to be killed in battle or to adopt a monastic life. In 
consequence nearly every race had much servile, that is mixed blood in it: and as 
the share of servile blood wu largest in the industrial classes, a race history of 
industrial habits seems impossible. 



196 


HEALTH AND STRENGTH 


IV, V, 8. 


Scarcity 

that 

increases 

mortality; 


and 

scarcity 
that lowers 
vigour. 


Clothing, 
house-room 
and firing. 


to this want of motherly care often grow up with enfeebled 
constitutions. 

In all ages of the world except the present, want of food 
has caused wholesale destruction of the people. Even in 
London in the seventeenth and eighteenth centuries the 
mortality was eight per cent, greater in years of dear corn 
than in years of cheap corn^. But gradually the effects of 
increased wealth and improved means of communication 
are making themselves felt nearly all over the world; the 
severity of famines is mitigated even in such a country 
as India; and they are unknown in Europe and in the 
New World. In England now want of food is scarcely 
ever the direct cause of death: but it is a frequent cause 
of that general weakening of the system which renders it 
unable to resist disease; and it is a chief cause of industrial 
inefS-ciency. 

We have already seen that the necessaries for efiSiciency 
vary with the nature of the work to be done, but we must 
now examine this subject a little more closely. 

As regards muscular work in particular there is a close 
connection between the supply of food that a man has, 
and his available strength. If the work is intermittent, as 
that of some dock labourers, a cheap but nutritious grain 
diet is sujficient. But for very heavy continuous strain such 
as is involved in puddlers* and the hardest navvies’ work, 
food is required which can be digested and assimilated even 
when the body is tired. This quality is still more essential 
in the food of the higher grades of labour, whose work 
involves great nervous strain; though the quantity required 
by them is generally small. 

After food, the next necessaries of life and labour are 
clothing, house-room and firing. When they are deficient, 
the mind becomes torpid, and ultimately the physical con- 
stitution is undermined. When clothing is very scanty, it is 
generally worn night and day; and the skin is allowed to 
be enclosed in a crust of dirt. A deficiency of house-room, 
or of fuel, causes people to live in a vitiated atmosphere 

^ This was proved by Farr, who eliminated disturbing causes by an instructive 
statistical device {Vital StatisticSy p. 139). 



HOPE, FREEDOM AND CHANGE 


197 


which is injurious to health and vigour; and not the least iv, v, 4. 
of the benefits which English people derive from the cheap- 
ness of coal, is the habit, peculiar to them, of having well- 
ventilated rooms even in cold weather. Badly-built houses 
with imperfect drainage cause diseases which even in their 
slighter forms weaken vitality in a wonderful way; and over- 
crowding leads to moral evils which diminish the numbers 
and lower the character of the people. 

Rest is as essential for the growth of a vigorous popula- Rest, 
tion as the more material necessaries of food, clothing, etc. 
Overwork of every form lowers vitality; while anxiety, 
worry, and excessive mental strain have a fatal influence 
in undermining the constitution, in impairing fecundity and 
diminishing the vigour of the race. 

§ 4. Next come three closely allied conditions of vigour, 
namely, hopefulness, freedom, and change. All history is freedom 
full of the record of inefiiciency caused in varying degrees change, 
by slavery, serfdom, and other forms of civil and political 
oppression and repression^. 

In all ages colonies have been apt to outstrip their 
mother countries in vigour and energy. This has been due 
partly to the abundance of land and the cheapness of neces- 
saries at their command; partly to that natural selection of 
the strongest characters for a life of adventure, and partly 
to physiological causes connected with the mixture of races: 
but perhaps the most important cause of all is to be found 
in the hope, the freedom and the changefulness of their 
lives^. 

‘ Freedom and hope increase not only man^s willingness but also his power 
for work; physiologists tell us that a given exertion consumes less of the store of 
nervous energy if done under the stimulus of pleasure than of pain: and without 
hope there is no enterprise. Security of person and property are two conditions 
of this hopefulness and freedom; but security always involves restraints on 
freedom, and it is one of the most difficult problems of civilizatibn to discover 
how to obtain the security which is a condition of freedom without too great a 
sacrifice of freedom itself. Changes of work, of scene, and of personal associations 
bring new thoughts, call attention to the imperfections of old methods, stimulate 
a “ divine discontent,^^ and in every way develop creative energy. 

■ By converse with others who come from different places, and have different 
customs, travellers learn to put on its trial many a habit of thought or action 
which otherwise they would have always acquiesced in as though it were a law of 
nature. Moreover, a shifting of places enables the more powerful and original 
minds to find full scope for their energies and to rise to important positions: 



198 


HEALTH AND STRENGTH 


IV, V, 5. Freedom so far has been regarded as freedom from 
external bonds. But that higher freedom, which comes of 
self-mastery, is an even more important condition for the 
highest work. The elevation of the ideals of life on which 
this depends, is due on the one side to political and economic 
causes, and on the other to personal and religious influences; 
among which the influence of the mother in early childhood 
is supreme. 

Influence §6. Bodily and mental health and strength are much 

tiOD. influenced by occupation^. At the beginning of this century 
the conditions of factory work were needlessly unhealthy and 
oppressive for all, and especially for young children. But 
Factory and Education Acts have removed the worst of these 
evils from factories; though many of them still linger about 
domestic industries and the smaller workshops. 

The higher wages, the greater intelligence, and the better 
medical facilities of townspeople should cause infant mortality 
to be much lower among them than in the country. But it 
is generally higher, especially where there are many mothers 
who neglect their family duties in order to earn money 
wages. 

whereas those who stay at home are often over much kept in their places. Few 
men are prophets in their own land; neighbours and relations are generaUy the 
last to pardon the faults and to recognize the merits of those who are less docile 
and more enterprising than those around them. It is doubtless chiefly for this 
reason that in almost every part of England a disproportionately large share of the 
best energy and enterprise is to be found among those who were bom elsewhere. 

But change may be carried to excess; and when population shifts so rapidly, 
that a man is always shaking himself loose from his reputation, he loses some of 
the best external aids to the formation of a high moral character. The extreme 
hopefulness and restlessness of those who wander to new countries lead to much 
waste of effort in half acquiring technical skill, and half finishing tasks which are 
speedily abandoned in favour of some new occupation. 

* The rate of mortality is low among ministers of religiomand schoolmasters; 
among the agricultural classes, and in some other industries such as those of 
wheelwrights, shipwrights and coal-miners. It is high in lead and tin mining, in 
fiie-making and earthenware manufacture. But neither these nor any other 
regular trade show as high a rate of mortality as is found among London general 
labourers and costermongers; while the highest of all is that of servants in inns. 
Such occupations are not directly injurious to health, but they attract those who 
are weak in physique and in character and they encourage irregular habits. 
A good account of the influence of occupation on death-rates is given in the 
supplement to the forty*fifth (1885) Annual Report of the Registrar-General, 
pp. XXV — ^Ixiii See also Farr’s Vital Statistics, pp. 892 — 411, Humphreys’ paper 
on Class Mortality Statistics in the Statistical Journal for June 1887, and the 
literature of the Factory Acts generaUy. 



THE INFLUENCE OF TOWN LIFE 


199 


§ 6. In almost all countries there is a constant migration 
towards the towns^. The large towns and especially London 
absorb the very best blood from all the rest of England; the 
most enterprising, the most highly gifted, those with the 
highest physique and the strongest characters go there to 
find scope for their abilities. An increasing number of those 
who are most capable and have most strength of character, 
live in suburbs, where excellent systems of drainage, water 
supply and lighting, together with good schools and oppor- 
tunities for open air play, give conditions at least as conducive 
to vigour as are to be found in the country; and though there 
are still many town districts only a little less injurious to 
vitality than were large towns generally some time ago, yet 
on the whole the increasing density of population seems to be 
for the present a diminishing source of danger. The recent 

' Davenant {Balance of Trade^ a.d. 1C99, p. 20), following Gregory King, proves 
that according to official figures London has an excess o! deaths over births of 
2000 a year, but an immigration of 5000; which is more than half of what he 
calculates, by a rather risky method, to be the true net increase of the population 
of the country. He reckons that 530,000 people live in London, 870,000 in the 
other cities and market towns, and 4,100,000 in villages and hamlets. Compare 
these figures with the census of 1901 for England and Wales; where we find 
London with a population of over 4,500,000; five more towns with an average of 
over 600,000; and sixty-nine more exceeding 60,000 with an average of over 

100.000. Nor is this all: for many suburbs whose population is not counted in, 
are often really parts of the big towns; and in some cases the suburbs of several 
adjacent towns run into one another, making them all into one gigantic, though 
rather scattered town. A suburb of Manchester is counted as a large town with 
220,000 inhabitants; and the same is true of West Ham, a suburb of London with 

275.000. The boundaries of some large towns are extended at irregular intervals 
to include such suburbs; and consequently the true population of a large town 
may be growing fast, while its nominal population grows slowly or even recedes, 
and then suddenly leaps forwards. Thus the nominal population of Liverpool 
was 552,000 in 1881; 618,000 in 1891; and 685,000 in 1901. 

Similar changes are taking place elsewhere. Thus the population of Paris has 
grown twelve times as fast during the nineteenth century as that of France. The 
towns of Germany are increasing at the expense of the country by one half per 
cent, of the population yearly. In the United States there was in 1800 no town 
with more than 75,000 inhabitants; in 1905 there were three which together 
contained more than 7,000,000 and eleven more with above 300,000 each. More 
than a third of the population of Victoria are collected in Melbourne. 

It must be recollected that the characteristics of town life increase in intensity 
for good and for evil with every increase in the size of a town, and its suburbs. 
Fresh coimtry air has to pass over many more sources of noisome vapour before 
it reaches the average Londoner than before it reaches the average inhabitant of a 
small town. The Londoner has generally to go far before be can reach the freedom 
and the restful sounds and sights of the country. London therefore with 4,500, CX)0 
inhabitants adds to the urban character of England’s life far more than a hundred 
times as much as a town of 45,000 inhabitants. 


IV, V, 6. 

Influence 
of town 
life. 



200 


HEALTH AND STRENGTH 


IV, y, 6. rapid growth of facilities for living far from the chief centres 
of industry and trade must indeed slacken in time. But 
there seems no sign of any slackening in the movement of in- 
dustries outwards to suburbs and even to new Garden Cities 
to seek and to bring with them vigorous workers. 

Statistical averages are indeed unduly favourable to 
urban conditions, partly because many of the town influences 
which lower vigour do not much affect mortality; and 
partly because the majority of immigrants into the towns 
are in tj^e full strength of youth, and of more than average 
energy and courage; while young people whose parents live 
in the country generally go home when they become seri- 
ously ill^. 

There is no better use for public and private money than 
in providing public parks and playgrounds in large cities, 
in contracting with railways to increase the number of the 
workmen’s trains run by them, and in helping those of the 
working classes who are willing to leave the large towns to 
do so, and to take their industries with them^. 

' For reasons of this kind Welton {Statistical Journal^ 1897) makes the ex- 
treme proposal to omit all persons between 15 and 35 years of age in comparing 
the rates of mortality in different towns. The mortality of females in London 
between the ages of fifteen and thirty-five is, chiefly for this reason, abnormally 
low. If however a town has a stationary population its vital statistics are more 
easily interpreted; and selecting Coventry as a typical town, Galton has calculated 
that the adult children of artisan townsfolk are little more than half as numerous 
as those of labouring people who live in healthy country districts. When a place 
is decaying, the young and strong and hearty drift away from it; leaving the old 
and the infirm behind them, and consequently the birth-rate is generally low. 
On the other hand, a centre of industry that is attracting population is likely to 
have a very high birth-rate, because it has more than its share of people in the 
full vigour of life. This is especially the case in the coal and iron towns, partly 
because they do not suffer, as the textile towns do, from a deficiency of males; 
and partly because miners as a class marry early. In some of them, though the 
death-rate is high, the excess of the birth-rate over it exceeds 20 per thousand of 
the population. The death-rate is generally highest in towns of the second order, 
chiefly because their sanitary arrangements are not yet as good as those of the 
very largest towns. 

Prof. Haycraft {Darwinism and Race Progress) argues in the opposite direction. 
He lays just stress on the dangers to the human race which would result from a 
diminution of those diseases, such as phthisis and scrofula, which attack chiefly 
people of weak constitution, and thus exercise a selective influence on the race, 
unless it were accompanied by corresponding improvements in other directions. 
But phthisis does not kill all its victims; there is some net gain in a diminution 
of its power of weakening them. 

* ^e an article entitled ** Where to House the London Poor” by the present 
writer in the Contem'porary Review^ Feb. 1884, 



NATURAL AND ARTIFICIAL SELECTION 


201 


§ 7. And there are yet other causes for anxiety. For iv, v, 7. 
there is some partial arrest of that selective influence of NaturTieft 
struggle and competition which in the earlier stages of 
civilization caused those who were strongest and most 

® the weak, 

vigorous to leave the largest progeny behind them : and but man 
to which, more than any other single cause, the progress of fered. 
the human race is due. In the later stages of civilization 
the rule has indeed long been that the upper classes marry 
late, and in consequence have fewer children than the 
working classes: but this has been compensated for by the 
fact that among the working classes themselves the old rule 
was held; and the vigour of the nation that is tending to be 
damped out among the upper classes is thus replenished by 
the fresh stream of strength that is constantly welling up 
from below. But in France for a long time, and recently in 
America, and England, some of the abler and more intelligent 
of the working class population have shown signs of a dis- 
inclination to have large families; and this is a source of 
danger^. 

Thus there are increasing reasons for fearing, that while 
the progress of medical science and sanitation is saving 
from death a continually increasing number of the children 
of those who are feeble physically and mentally; many of 
those who are most thoughtful and best endowed with 
energy, enterprise and self-control are tending to defer their 
marriages and in other ways to limit the number of children 
whom they leave behind them. The motive is sometimes 
selfish, and perhaps it is best that hard and frivolous people 
should leave but few descendants of their own type. But 
more often it is a desire to secure a good social position 
for their children. This desire contains many elements 
that fall short of the highest ideals of human aims, and 
in some cases, a few that are distinctly base; but after 

^ In the Southern States of America, manual work became disgraceful 
to the white man; so that, if unable to hare slaves himself, he led a paltry 
degenerate life, and seldom married. Again, on the Pacific Slope, there were 
at one time just grounds for fearing that aU but highly skilled work would be left 
to the Chinese; and that the white men would live in an artificial way in which 
a family became a great expense. In this case Chinese lives would have been 
substituted for American, and the average quality of the human race would have 
been lowered. 



202 HEALTH AND STRENGTH 

IV, V, 8. all it has been one of the chief factors of progress, and those 
who are affected by it include many of those whose children 
would probably be among the best and strongest of the 
race. 

The state ^ It must be remembered that the members of a large 

family educate one another, they are usually more genial 
oTbeaithy bright, often more vigorous in every way than the 
children, members of a small family. Partly, no doubt, this is because 
their parents were of unusual vigour; and for a like reason 
they in their turn are likely to have large and vigorous 
families. The progress of the race is due to a much greater 
extent than appears at first sight to the descendants of a few 
exceptionally large and vigorous families. 

The evils But on the other hand there is no doubt that the parents 
moitSrty. often do better in many ways for a small family than 
a large one. Other things being equal, an increase in the 
number of children who are born causes an increase of infan- 
tile mortality; and that is an unmixed evil. The birth of 
children who die early from want of care and adequate means 
is a useless strain to the mother and an injury to the rest of 
the family^. 

Practical §8. There are other considerations of which account 
conclusion. — taken; but so far as the points discussed in this 
chapter are concerned, it seems primd facie advisable that 
people should not bring children into the world till they can 
see their way to giving them at least as good an education 
both physical and mental as they themselves had; and that 
it is best to marry moderately early provided there is sufficient 
self-control to keep the family within the requisite bounds 
without transgressing moral laws. The general adoption of 

* The extent of the infant mortality that arises from preventable causes may 
be inferred from the facts that the percentage of deaths under one year of age to 
births is generally about a third as much again in urban as in rural districts; and 
yet in many urban districts which have a well-to-do population it is lower than the 
average for the whole country {Registrar-OenerdPi Report for 1905, pp. xlii-xlv). 
A few years ago it was found that, while the annuEd death-rate of children under 
five years of age was only about two per cent, in the families of peers and was less 
than three per cent, for the whole of the upper classes, it was between six and seven 
per cent, for the whole of England. On the other hand Prof. Leroy Beaulieu says 
that in Prance the parents of but one or two children are apt to indulge them, and 
be ovsor-oareful about them to the detriment of their boldnsM, enterprise and 
endurance. (See Statistical Journal^ VoL 54, pp. 378, 9.) 



PRACTICAL CONCLUSION 


203 


these principles of action, combined with an adequate provi- iv, v, 8. 
sion of fresh air and of healthy play for our town populations, 
could hardly fail to cause the strength and vigour of the race 
to improve. And we shall presently find reasons for believing 
that if the strength and vigour of the race improves, the 
increase of numbers will not for a long time to come cause a 
diminution of the average real income of the people. 

Thus then the progress of knowledge, and in particular The 
of medical science, the ever-growing activity and wisdom of to-and-fro 
Government in all matters relating to health, and the increase of 
of material wealth, all tend to lessen mortality and to increase 
health and strength, and to lengthen life. On the other hand, 
vitality is lowered and the death-rate raised by the rapid 
increase of town life, and by the tendency of the higher 
strains of the population to marry later and to have fewer 
children than the lower. If the former set of causes were 
alone in action, but so regulated as to avoid the danger of 
over-population, it is probable that man would quickly rise 
to a physical and mental excellence superior to any that 
the world has yet known; while if the latter set acted un- 
checked, he would speedily degenerate. 

As it is, the two sets hold one another very nearly in The former 
balance, the former slightly preponderating. While the 
population of England is growing nearly as fast as ever, 
those who are out of health in body or mind are certainly 
not an increasing part of the whole : the rest are much better 
fed and clothed, and, except in over-crowded industrial 
districts, are generally growing in strength. The average 
duration of life both for men and women has been increasing 
steadily for many years. 



CHAPTER VI. 

INDUSTRIAL TRAINING. 

IV, VI, 1 . §1. Having discussed the causes which govern the 

growth of a numerous and vigorous population, we have 
next to consider the training that is required to develop 
its industrial efficiency. 

The form The natural vigour that enables a man to attain great 
natural success in any one pursuit would generally have served him 
takes^ in good Stead in almost any other. But there are exceptions, 
depends^n Some people, for instance, seem to be fitted from birth for an 
training, artistic Career, and for no other; and occasionally a man of 
great practical genius is found to be almost devoid of artistic 
sensibility. But a race that has great nervous strength 
seems generally able, under favourable conditions, to develop 
in the course of a few generations ability of almost any kind 
that it holds in specially high esteem. A race that has 
acquired vigour in war or in the ruder forms of industry 
sometimes gains intellectual and artistic power of a high 
order very quickly; and nearly every literary and artistic 
epoch of classical and medisBval times has been due to a 
people of great nervous strength, who have been brought 
into contact with noble thoughts before they have acquired 
much taste for artificial comforts and luxuries. 

The defects The growth of this taste in our own age has prevented 
are US from taking full advantage of the opportunities our largely 
MtoatS. increased resources give us of consecrating the greater part 
of the highest abilities of the race to the highest aims. But 
perhaps the intellectual vigour of the age appears less than 



unskilled tABOtJIt A HiiLATIVB TfiRM S06 

it really is, in consequence of the growth of scientific pursuits, iv, vi, 2 . 
For in art and literature success is often achieved while genius 
still wears the fascinating aspect of youth; but in modern 
science so much knowledge is required for originality, that 
before a student can make his mark in the world, his mind 
has often lost the first bloom of its freshness ; and further the 
real value of his work is not often patent to the multitude as 
that of a picture or poem generally is^. In. the same way 
the solid qualities of the modern machine-tending artisan 
are rated more cheaply than the lighter virtues of the 
mediaeval handicraftsman. This is partly because we are 
apt to regard as commonplace those excellences which are 
common in our own time; and to overlook the fact that 
the term ‘‘unskilled labourer’’ is constantly changing its 
meaning. 

S2. Very backward races are unable to keep on at any Skilled and 

T .i-iiT r unskilled 

kind of work for a long time ; and even the simplest form of labour. 

what we regard as unskilled work is skilled work relatively 

to them; for they have not the requisite assiduity, and 

they can acquire it only by a long course of training. 

But where education is universal, an occupation may fairly 

be classed as unskilled, though it requires a knowledge of 

reading and writing. Again, in districts in which manufac- Skill with 

tures have long been domiciled, a habit of responsibility, of we are 

carefulness and promptitude in handling expensive machinery 

and materials becomes the common property of all; and then not 

much of the work of tending machinery is said to be entirely as skill. 

mechanical and unskilled, and to call forth no human faculty 

that is worthy of esteem. But in fact it is probable that not 

one-tenth of the present populations of the world have the 

**In this connection it is worth while to notice that the full importance of 
an epoch-making idea is often not perceived in the generation in which it is 
made: it starts the thoughts of the world on a new track, but the change of 
direction is not obvious until the turning-point has been left some way behind. 

In the same way the mechanical inventions of every age are apt to be underrated 
relatively to those of earlier times. For a new discovery is seldom fully effective 
for practical purposes till many minor improvements and subsidiary discoveries 
have gathered themselves around it: an invention that makes an epoch is very 
often a generation older than the epoch which it makes. Thus it is that each 
generation seems to be chiefly occupied in working out the thoughts of the 
preceding one; while. the full importance of its own thoughts is as yet not clearly 
seen. 



206 


INDUSTRIAL TRAINING 


IV, VI, 2. mental and moral faculties, the intelligence, and the self- 
control that are required for it: perhaps not one-half could 
be made to do the work well by steady training for two 
generations. Even of a manufacturing population only a small 
part are capable of doing many of the tasks that appear at 
first sight to be entirely monotonous. Machine-weaving, for 
instance, simple as it seems, is divided into higher and lower 
grades; and most of those who work in the lower grades have 
not “the stuff in them” that is required for weaving with 
several colours. And the differences are even great in 
industries that deal with hard materials, wood, metals, or 
ceramics. 

Mere Some kinds of manual work require long-continued 

manual . . • i i 

skill is practice in one set of operations, but these cases are not 

portanw ' Very common, and they are becoming rarer : for machinery is 
to^nerai Constantly taking over work that requires manual skill of this 
kind. It is indeed true that a general command over the 
vigour of use of one’s fingers is a very important element of industrial 

clisircic ti6i* 

efficiency; but this is the result chiefly of nervous strength, 
and self-mastery. It is of course developed by training, but 
the greater part of this may be of a general character and 
not special to the particular occupation; just as a good 
cricketer soon learns to play tennis well, so a skilled artisan 
can often move into other trades without any great and 
lasting loss of efficiency. 

Manual skill that is so specialized that it is quite in- 
capable of being transferred from one occupation to another 
is becoming steadily a less and less important factor in 
production. Putting aside for the present the faculties of 
artistic perception and artistic creation, we may say that 
what makes one occupation higher than another, what 
• makes the workers of one town or country more efficient 
than those of another, is chiefly a superiority in general 
sagacity and energy which are not specialized to any one 
occupation. 

To be able to bear in mind many things at a time, to 
have everything ready when wanted, to act promptly and 
show resource when anything goes wrong, to accommodate 
oneself quickly to changes in detail of the work done, to be 



GENERAL AND SPECIALIZED ABILITY 


207 


steady and trustworthy, to have always a reserve of force iv, vi, 3. 
which will come out in emergency, these are the qualities 
which make a great industrial people. They are not peculiar 
to any occupation, but are wanted in all; and if they cannot 
always be easily transferred from one trade to other kindred 
trades, the chief reason is that they require to be supple- 
mented by some knowledge of materials and familiarity with 
special processes. 

We may then use the term general ability to denote Gwieroi 
those faculties and that general knowledge and intelligence Specialized 
which are in varying degrees the common property of 
the higher grades of industry: while that manual dexterity 
and that acquaintance with particular materials and pro- 
cesses which are required for the special purposes of 
individual trades may be classed as specialized ability, 

§ 3. General ability depends largely on the surroundings The causes 
of childhood and youth. In this the first and far the most determine 
powerful influence is that of the mother^. Next comes the of gineraf 
influence of the father, of other children, and in some cases 
of servants^. As years pass on the child of the working man The home, 
learns a great deal from what he sees and hears going on 
around him; and when we inquire into the advantages for 
starting in life which children of the well-to-do classes have 
over those of artisans, and which these in their turn have 
over the children of unskilled labourers, we shall have to 
consider these influences of home more in detail. But at 
present we may pass to consider the more general influences 
of school education. 

^ According to Galton the statement that all great men hare had great 
mothers goes too far: but that shows only that the mother’s influence does not 
outweigh all others; not that it is not greater than any one of them. He says 
that the mother’s influence is most easily traceable among theologians and men 
of science, because an earnest mother leads her child to feel deeply about great 
things; and a thoughtful mother does not repress, but encourages that childish 
curiosity which is the raw material of scientific habits of thought. 

* There are many fine natures among domestic servants. But those who 
lire in very rich houses are apt to get self-indulgent habits, to overestimate the 
importance of wealth, and generally to put the lower aims of life above the higher, 
in a way that is not common with independent working people. The company in 
which the children of some of our best houses spend much of their time, is less 
ennobling than that of the average cottage. Yet in these very houses, no servant 
who is not specially qualified, is allowed to take charge of a young retriever or 
a young horse. 



SOS 


INDUSTRIAL TRAINING 


IV, VI, 4. 
School. 


Technical 

education. 


Little need be said of general education; though the 
influence even of that on industrial efficiency is greater than 
it appears. It is true that the children of the working 
classes must very often leave school, when they have but 
learnt the elements of reading, writing, arithmetic and draw- 
ing; and it is sometimes argued that part of the little time 
spent on these subjects would be better given to practical 
work. But the advance made at school is important not 
so much on its own account, as for the power of future 
advance which a school education gives. For a truly liberal 
general education adapts the mind to use its best faculties 
in business and to use business itself as a means of increas- 
ing culture; though it does not concern itself with the 
details of particular trades: that is left for technical educa- 
tion^. 

§4. Technical education has in like manner raised its 
aims in recent years. It used to mean little more than im- 
parting that manual dexterity and that elementary knowledge 
of machinery and processes which an intelligent lad quickly 
picks up for himself when his work has begun; though if he 
has learnt it beforehand, he can perhaps earn a few shillings 
more at starting than if he had been quite ignorant. But 
such so-called education does not develop faculties; it 
rather hinders them from being developed. A lad, who has 
picked up the knowledge for himself, has educated himself by 
so doing; and he is likely to make better progress in the 


* The absence of a careful general education for the children of the working 
classes, has been hardly less detrimental to industrial progress than the narrow 
range of the old grammar-school education of the middle classes. Till recently 
indeed it was the only one by which the average schoolmaster could induce his 
pupils to use their minds in anything higher than the absorption of knowledge. 
It was therefore rightly called liberal, because it was the best that was to be had. 
But it failed in its aim of familiarizing the citizen with the great thoughts of 
antiquity; it was generally forgotten as soon as school-time was over; and it 
raised an injurious antagonism between business and culture. Now however the 
advance of knowledge is enabling us to use science and art to supplement the 
curriculum of the grammar-school, and to give to those who can afford it an 
education that develops their best faculties, and starts them on the track of 
thoughts which will most stimulate the higher activities of their minds in 
after-life. The time spent on learning to spell is almost wasted: if spelling and 
pronimciation are brought into harmony in the English language as in most others, 
about a year will be added to the effective school education without any additional 
cost. 



GENERAL AND TECHNICAL EDUCATION 


209 


future than one who has been taught in a school of this old- iv, vi, 4. 
fashioned kind. Technical education is however outgrowing 
its mistakes; and is aiming, firstly, at giving a general 
command over the use of eyes and fingers (though there 
are signs that this work is being taken over by general 
education, to which it properly belongs); and secondly at 
imparting artistic skill and knowledge, and methods of in- 
vestigation, which are useful in particular occupations, but 
are seldom properly acquired in the course of practical work. 

It is however to be remembered that every advance in the 
accuracy and versatility of automatic machinery narrows the 
range of manual work in which command over hand and eye 
is at a high premium; and that those faculties which are 
trained by general education in its best forms are ever rising 
in importance^. 

According to the best English opinions, technical educa- The aims 
tion for the higher ranks of industry should keep the aim of edSicm 
developing the faculties almost as constantly before it 
general education does. It should rest on the same basis 
as a thorough general education, but should go on to work 
out in detail special branches of knowledge for the benefit of 
particular trades^. Our aim should be to add the scientific 
training in which the countries of Western Europe are ahead 
of us to that daring and restless energy and those practical 
instincts, which seldom flourish unless the best years of 
youth are spent in the workshop; recollecting always that 
whatever a youth learns for himself by direct experience in 
well-conducted works, teaches him more and stimulates his 
mental activity more than if it were taught him by a master 
in a technical school with model instruments^. 

^ As Nasmyth says; if a lad, having dropped two peas at random on a table, 
can readily put a third pea midway in a line between them, he is on the way to 
become a good mechanic. Command over eye and hand is gained in the ordinary 
English games, no less than in the playful work of the Kinder-garten. Drawing 
has always been on the border line between work and play. 

* One of the weakest points of technical education is that it does not educate 
the sense of proportion and the desire for simplicity of detail. The English, and 
to an even greater extent, the Americans, have acquired in actual business the 
faculty of rejecting intricacies in machinery and processes, which are not worth 
what they cost, and practical instinct of this kind often enables them to succeed 
*n competition with Continental rivals who are much better educated. 

• A good plan is that of spending the six winter months of several years after 



210 


INDUSTRIAL TRAINING 


rv, VI, 4. 

Appren- 

ticeship. 


Inventions 
in England 


The old apprenticeship system is not exactly suited to 
modern conditions and it has fallen into disuse; but a sub- 
stitute for it is wanted. Within the last few years many of 
the ablest manufacturers have begun to set the fashion of 
making their sons work through every stage in succession of 
the business they will ultimately have to control; but this 
splendid education can be had only by a few. So many and 
various are the branches of any great modem industry that 
it would be impossible for the employers to undertake, as 
they used to do, that every youth committed to their care 
should learn all; and indeed a lad of ordinary ability would 
be bewildered by the attempt. But it does not seem 
impracticable to revive the apprenticeship system in a 
modified form^. 

The great epoch-making inventions in industry came 
till recently almost exclusively from England. But now 


leaving ichool in learning science in College, and the six summer months as 
articled pupils in large workshops. The present writer introduced this plan about 
forty years ago at University College, Bristol (now the University of Bristol). But 
it has practical difficulties which can be overcome only by the cordial and generous 
co-operation of the heads of large firms with the College authorities. Another 
excellent plan is that adopted in the school attached to the works of Messrs Mather 
and Platt at Manchester. “The drawings made in the school are of work actually 
in progress in the shops. One day the teacher gives the necessary explanations 
and calculations, and the next day the scholars see, as it were on the anvil, the 
very thing which has been the subject of his lecture.” 

‘ The employer binds himself to see that the apprentice is thoroughly taught 
In the workshop all the subdivisions of one great division of his trade, instead of 
letting him learn only one of these subdivisions, as too often happens now. The 
apprentice’s training would then often be as broad as if he had been taught the 
whole of the trade as it existed a few generations ago; and it might be supple- 
mented by a theoretical knowledge of all branches of the trade, acquired in a 
technical school Something resembling the old apprenticeship system has recently 
come into vogue for young Englishmen who desire to learn the business of farming 
under the peculiar conditions of a new country: and there are some signs that the 
plan may be extended to the business of farming in this country, for which it is in 
many respects admirably adapted. But there remains a great deal of education 
suitable to the farmer and to the farm-labourer which can best be given in agricul- 
tural colleges and dairy schools. 

Meanwhile many great agencies for the technical education of adults are being 
rapidly developed, such as public exhibitions, trade associations and congresses, 
and trade journals. Each of them has its own work to do. In agriculture and 
some other trades the greatest aid to progress is perhaps found in public shows. 
But those industries, which are more advanced and in the hands of persons of 
studious habits, owe more to the difiusion of practical and scientific knowledge by 
trade journals; which, aided by changes in the methods of industry and also in its 
social conditions, are breaking up trade secrets and helping men of small means 
in competition with their richer rivals. 



GENERAL AND TECHNICAL EDUCATION 


211 


other nations are joining in the race. The excellence of iv, vi, 5. 
the common schools of the Americans, the variety of their and other 
lives, the interchange of ideas between different races among 
them, and the peculiar conditions of their agriculture have 
developed a restless spirit of inquiry; while technical educa- 
tion is now being pushed on with great vigour. On the 
other hand, the diffusion of scientific knowledge among the 
middle and even the working classes of Germany, combined 
with their familiarity with modern languages and their 
habits of travelling in pursuit of instruction, has enabled 
them to keep up with English and American mechanics and 
to take the lead in many of the applications of chemistry to 
business^. 

§ 5. It is true that there are many kinds of work a high 
which can be done as efficiently by an uneducated as wiu in- 
by an educated workman: and that the higher branches 
of education are of little direct use except to employers 
and foremen and a comparatively small number of artisans, grades of 
But a good education confers great indirect benefits even indirectly 
on the ordinary workman. It stimulates his mental activity; Srectiy!^^’^ 
it fosters in him a habit of wise inquisitiveness; it makes 
him more intelligent, more ready, more trustworthy in his 
ordinary work; it raises the tone of his hfe in working hours 
and out of working hours; it is thus an important means 
towards the production of material wealth; at the same time 
that, regarded as an end in itself, it is inferior to none of 
those which the production of material wealth can be made 
to subserve. 

We must however look in another direction for a part, 
perhaps the greater part, of the immediate economic gain 
which the nation may derive from an improvement in 
the general and technical education of the mass of the 
people. We must look not so much at those who stay 
in the rank and file of the working classes, as at those 
who rise from a humble birth to join the higher ranks 

^ The heads of almost every progressive firm on the Continent have carefully 
studied processes and machinery in foreign lands. The English are great 
travellers; but partly perhaps on account of their ignorance of other languages 
they seem hardly to set enough store on the technical education that can be 
gained by the wise use of travel 



212 


INDUSTRIAL TRAINING 


IV, VI, 6. 


Much of 
the best 
natural 
ability in 
the nation 
is bom 
among the 
working 
classes, and 
too often 
runs to 
waste now. 


of skilled artisans, to become foremen or employers, to 
advance the boundaries of science, or possibly to add to 
the national wealth in art and literature. 

The laws which govern the birth of genius are in- 
scrutable. It is probable that the percentage of children 
of the working classes who are endowed with natural 
abilities of the highest order is not so great as that of the 
children of people who have attained or have inherited 
a higher position in society. But since the manual labour 
classes are four or five times as numerous as all other 
classes put together, it is not unlikely that more than half 
the best natural genius that is born into the country belongs 
to them; and of this a great part is fruitless for want of 
opportunity. There is no extravagance more prejudicial 
to the growth of national wealth than that wasteful negli- 
gence which allows genius that happens to be born of 
lowly parentage to expend itself in lowly work. No change 
would conduce so much to a rapid increase of material 
wealth as an improvement in our schools, and especially those 
of the middle grades, provided it be combined with an 
extensive system of scholarships, which will enable the clever 
son of a working man to rise gradually from school to school 
till he has the best theoretical and practical education which 
the age can give. 

To the abilities of children of the working classes may 
be ascribed the greater part of the success of the free 
towns in the Middle Ages and of Scotland in recent times. 
Even within England itself there is a lesson of the same 
kind to be learnt: progress is most rapid in those parts of 
the country in which the greatest propprtion of the leaders 
of industry are the sons of working men. For instance, the 
beginning of the manufacturing era found social distinctions 
more closely marked and more firmly established in the South 
than in the North of England. In the South something of 
a spirit of caste has held back the working men and the sons 
of working men from rising to posts of command; and the 
old established families have been wanting in that elasticity 
and freshness of mind which no social advantages can supply, 
and which comes only from natural gifts. This spirit of 



LATENT GENIUS AMONG THE WORKING CLASSES 


213 


caste, and ttis deficiency of new blood among the leaders of iv, vi, 6. 
industry, have mutually sustained one another; and there 
are not a few towns in the South of England whose decadence 
within living memory can be traced in a great measure to 
this cause. 

§ 6. Education in art stands on a somewhat different Education 
footing from education in hard thinking: for while the latter 
nearly always strengthens the character, the former not 
unfrequently fails to do this. Nevertheless the development 
of the artistic faculties of the people is in itself an aim 
of the very highest importance, and is becoming a chief 
factor of industrial efficiency. 

We are here concerned almost exclusively with those 
branches of art which appeal to the eye. For though 
literature and music contribute as much and more to the 
fulness of life, yet their development does not directly affect, 
and does not depend upon, the methods of business, the 
processes of manufacture and the skill of artisans. 

The artisan of Europe in the Middle Ages, and of eastern Where 
countries now, has perhaps obtained credit for more origin- industrial 
ality than he has really possessed. Eastern carpets, forgio^lrtis 
instance, are full of grand conceptions : but if we examine a 
great many examples of the art of any one place, selected instincts, 
perhaps from the work of several centuries, we often find 
very little variety in their fundamental ideas. But in the 
modern era of rapid changes — some caused by fashion and 
some by the beneficial movements of industrial and social 
progress — everyone feels free to make a new departure, 
everyone has to rely in the main on his own resources: 
there is no slowly matured public criticism to guide him^. 


* In fact every designer in a primitive age is governed by precedent: only 
very daring people depart from it; even they do not depart far, and their innova- 
tions are subjected to the test of experience, which, in the long run, is infallible. 
For though the crudest and most ridiculous fashions in art and in literature will 
be accepted by the people for a time at the bidding of their social superiors, 
nothing but true artistic excellence has enabled a ballad or a melody, a style of 
dress or a pattern of furniture to retain its popularity among a whole nation for 
many generations together. These innovations, then, which were inconsistent 
with the true spirit of art were suppressed, and those that were on the right 
track were retained, and became the starting-point for further progress; and 
thus traditional instincts played a great part in preserving the purity of the 
industrial arts in Oriental countries, and to a less extent in mediaeval Europe. 



214 


INDUSTRIAL TRAINING 


IV, VI, 6. 
and 

attracts 
a large 
share of 
ability. 


But in 
modem 
times 
design is 
almost 
limited to 
a narrow 
profession 


This is however not the only, perhaps not the chief 
disadvantage under which artistic design labours in our own 
age. There is no good reason for believing that the children 
of ordinary workmen in the Middle Ages had more power of 
artistic origination than those of ordinary village carpenters 
or blacksmiths of to-day; but if one among ten thousand 
happened to have genius, it found vent in his work and 
was stimulated by the competition of the gilds and in 
other ways. But the modern artisan is apt to be occupied 
in the management of machinery; and though the faculties 
which he develops may be more solid and may help more 
in the long run towards the highest progress of the human 
race, than did the taste and fancy of his mediaeval pre- 
decessor, yet they do not contribute directly towards the 
progress of art. And if he should find in himself a higher 
order of ability than among his fellows, he will probably 
endeavour to take a leading part in the management of a 
trades-union or some other society, or to collect together a 
little store of capital and to rise out of that trade in which 
he was educated. These are not ignoble aims; but his 
ambition would perhaps have been nobler and more fruitful 
of good to the world, if he had stayed in his old trade and 
striven to create works of beauty which should live after he 
had gone. 

It must however be admitted that he would have great 
difficulties in doing this. The shortness of the time which 
we allow ourselves for changes in the arts of decoration is 
scarcely a greater evil than the width of the area of the 
world over which they are spread; for that causes a further 
distraction of the hasty and hurried efforts of the designer, 
by compelling him to be always watching the world move- 
ments of the supply of and demand for art products. This 
is a task for which the artisan, who works with his own 
hands, is not well fitted; and in consequence now-a-days 
the ordinary artisan finds it best to follow and not to lead. 
Even the supreme skill of the Lyons weaver shows itself 
now almost exclusively in an inherited power of delicate 
manipulation, and fine perception of colour, that enable him 
to carry out perfectly the ideas of professional designers. 



ABTISnO DESIGN 


216 


Increasing wealth is enabling people to buy things of all iv, vi, 6. 
kinds to suit the fancy, with but a secondary regard to their whichis 
powers of wearing; so that in all kinds of clothing and fumi- p^y^ourt 
ture it is every day more true that it is the pattern which to fashion, 
sells the things. The influence of the late William Morris 
and others, combined with the lead which many English 
designers have derived from Oriental and especially Persian 
and Indian masters of colour is acknowledged by Frenchmen 
themselves to have attained the first rank for certain classes 
of English fabrics and decorative products. But in other 
directions France is supreme. Some English manufacturers 
who hold their own against the world would, it is said, be 
driven out of the market if they had to depend on English 
patterns. This is partly due to the fact that Paris having 
the lead in fashions, as the result of an inherited quick 
and subtle taste in women’s dress, a Parisian design is 
likely to be in harmony with the coming fashions and to 
sell better than a design of equal intrinsic worth from 
elsewhere^. 

Technical education, then, though it cannot add much 
directly to the supply of genius in art, any more than it can 
in science or in business, can yet save much natural artistic 
genius from running to waste; and it is called on to do this 
all the more because the training that was given by the 
older forms of handicraft can never be revived on a large 
scale^. 

^ French designers find it best to live in Paris: if they stay for long out of 
contact with the central movements of fashion they seem to fall behindhand. 

Most of them have been educated as artists, but have failed of their highest 
ambition. It is only in exceptional cases, as for instance for the Sevres china, 
that those who have succeeded as artists find it worth their while to design. 
Englishmen can, however, hold their own in designing for Oriental markets, and 
there is evidence that the English are at least equal to the French in originality, 
though they are inferior in quickness in seeing how to group forms and colours so 
as to obtain an effective result. (See the Report on Technical Edwcationy VoL I. 
pp. 256, 261, 324, 325 and Vol. m. pp. 151, 152, 202, 203, 211 and passim.) It is 
probable that tlie profession of the modern designer has not yet risen to the best 
position which it is capable of holding. For it has been to a disproportionate 
extent under the influence of one nation; and that nation is one whose works in 
the highest branches of art have seldom borne to be transplanted. They have 
indeed often been applauded and imitated at the time by other natioxis, but they 
have as yet seldom struck a key>note for the best work of later generations. 

* The painters themselves have put on record in the portrait-galleries the 
fact that in mediseval times, and even later, their art attracted a larger share of 



216 


INDUSTRIAL TRAINING 


IV, VI, 7. 

Education 
a national 
invest- 
ment, 


and a duty 
of parents. 


§ 7. We may then conclude that the wisdom of ex- 
pending public and private funds on education is not to be 
measured by its direct fruits alone. It will be profitable as 
a mere investment, to give the masses of the people much 
greater opportunities than they can generally avail them- 
selves of. For by this means many, who would have died 
unknown, are enabled to get the start needed for bringing 
out their latent abilities. And the economic value of one 
great industrial genius is sufficient to cover the expenses of 
the education of a whole town; for one new idea, such as 
Bessemer’s chief invention, adds as much to England’s pro- 
ductive power as the labour of a hundred thousand men. 
Less direct, but not less in importance, is the aid given to 
production by medical discoveries such as those of Jenner 
or Pasteur, which increase our health and working power; 
and again by scientific work such as that of mathematics 
or biology, even though many generations may pass away 
before it bears visible fruit in greater material wellbeing. 
All that is spent during many years in opening the means 
of higher education to the masses would be well paid for 
if it called out one more Newton or Darwin, Shakespeare 
or Beethoven. 

There are few practical problems in which the economist 
has a more direct interest than those relating to the princi- 
ples on which the expense of the education of children should 
be divided between the State and the parents. But we 
must now consider the conditions that determine the power 
and the will of the parents to bear their share of the expense, 
whatever it may be. 

Most parents are willing enough to do for their children 
what their own parents did for them; and perhaps even 
to go a little beyond it if they find themselves among 
neighbours who happen to have a rather higher standard. 
But to do more than this requires, in addition to the moral 
qualities of unselfishness and a warmth of affection that 

the best intellect than it does now; when the ambition of youth is tempted by the 
excitement of modem business, when its zeal for imperishable achievements finds 
a field in the discoveries of modem science, and, lastly, when a great deal of 
excellent talent is insensibly diverted from high aims by the ready pay to be got 
by hastily writing half-thoughts for periodical literature. 



MOBILITY BETWEEN GRADES AND WITHIN GRADES 


217 


are perhaps not rare, a certain habit of mind which is as iv, vi, 8. 
yet not very common. It requires the habit of distinctly 
realizing the future, of regarding a distant event as of nearly 
the same importance as if it were close at hand (discounting 
the future at a low rate of interest); this habit is at once a 
chief product and a chief cause of civilization, and is seldom 
fully developed except among the middle and upper classes 
of the more cultivated nations. 

§ 8. Parents generally bring up their children to occu- Mobility 
pations in their own grade, and therefore the total supply of grades and 
labour in any grade in one generation is in a great measure g/adS. 
determined by the numbers in that grade in the preceding 
generation, yet within the grade itself there is greater 
mobility. If the advantages of any one occupation in it rise 
above the average, there is a quick influx of youth from other 
occupations within the grade. The vertical movement from 
one grade to another is seldom very rapid or on a very 
large scale; but, when the advantages of a grade have risen 
relatively to the difficulty of the work required of it, 
many small streams of labour, both youthful and adult, 
will begin to flow towards it; and though none of them 
may be very large, they will together have a sufficient 
volume to satisfy before long the increased demand for 
labour in that grade. 

We must defer to a later stage a fuller discussion of the Provisional 
obstacles which the conditions of any place and time oppose ^ 

to the free mobility of labour, and also of the inducements 
which they offer to anyone to change his occupation or to 
bring up his son to an occupation different from his own. 

But we have seen enough to conclude that, other things being 
equal, an increase in the earnings that are to be got by labour 
increases its rate of growth; or, in other words, a rise in its 
demand price increases the supply of it. If the state of 
knowledge, and of ethical, social and domestic habits be 
given; then the vigour of the people as a whole if not their 
numbers, and both the numbers and vigour of any trade in 
particular, may be said to have a supply price in this sense, 
that there is a certain level of the demand price which will 
keep them stationary; that a higher price would cause them 



218 INDUSTRIAL TRAINING 

IV, Ti, 8. to increase, and that a lower price would cause them to 
decrease. Thus economic causes play a part in governing 
the growth of population as a whole as well as the supply of 
labour in any particular grade. But their influence on the 
numbers of the population as a whole is largely indirect; 
and is exerted by way of the ethical, social and domestic 
habits of life. For these habits are themselves influenced 
by economic causes deeply, though slowly, and in ways 
some of which are difficult to trace, and impossible to 
predict^. 

‘ Mill was 80 much impressed by the difficulties that beset a parent in the 
attempt to bring up his son to an occupation widely different in character from his 
own, that he said {Principles^ 11. xiv. 2): — *‘So complete, indeed, has hitherto been 
the separation, so strongly marked the line of demarcation, between the different 
grades of labourers, as to be almost equivalent to an hereditary distinction of caste; 
each employment being chiefly recruited from the children of those already employed 
in it, or in employments of the same rank with it in social estimation, or from the 
children of persons who, if originally of a lower rank, have succeeded in raising 
themselves by their exertions. The liberal professions are mostly supplied by the 
sons of either the professional or the idle classes: the more highly skilled manual 
employments are flUed up from the sons of skilled artisans or the class of 
tradesmen who rank with them: the lower classes of skilled emplo3rmente are 
in a similar case; and imskilled labourers, with occasional exceptions, remain 
from father to son in their pristine condition. Consequently the wages of each 
class have hitherto been regulated by the increase of its own population, rather 
than that of the general population of the country.*^ But be goes on, “The 
changes, however, now so rapidly taking place in usages and ideas are imder- 
mining all these distinctions.” 

His prescience has been’ vindicated by the progress of change since he wrote. 
The broad lines of division which he pointed out have been almost obliterated by 
the rapid action of those causes which, as we saw earlier in the chapter, are 
reducing the amount of skill and ability required in some occupations and 
increasing it in others. We cannot any longer regard different occupations as 
distributed among four great planes; but we may perhaps think of them as 
resembling a long flight of steps of unequal breadth, some of them being so broad 
as to act as landing stages. Or even better still we might picture to ourselves two 
flights of stairs, one representing the “hard-handed industries” and the other 
“the soft-handed industries”; because the vertical division between these two is 
in fact as broad and as clearly marked as the horizontal division between any two 
grades. 

Mill’s classiflcation had lost a great part of its value when Caimes adopted it 
{Leading Principles^ p. 72). A classification more suited to our existing conditions 
is offered by Giddings {Political Science Qvxirterly^ VoL n. pp. 69 — 71). It is 
open to the objection that it draws broad lines of division where nature has made 
no broad lines; but it is perhaps as good as any division of industry into four 
grades can be. His divisions are (i) automatic manual labour^ including common 
labourers and machine tenders; (ii) responsible manual labour y including those who 
can be entrusted with some responsibility and labour of self-direction; (iii) auto- 
matic brain workerSy such as book-keepers, and (iv) responsible brain workerSy 
including the superintendents and directors. 

The conditions and methods of the large and incessant movement of the 



MOBILITY BETWEEN GRADES AND WITHIN GRADES 


219 


population upwards and downwards from grade to grade are studied more fully IV, vi, 8. 
be’ow, VI. IV. V. and vn. 

The growing demand for boys to run errands, and to do other work that has 
no educational value, has increased the danger that parents may send their sons 
into avenues that have no outlook for good employment in later years: and 
something is being done by public agency, and more by the devotion and energy 
of men and women in unofficial association, in giving out notes of warning 
against such “blind alley*’ occupations, and assisting lads to prepare themselves 
for skilled work. These efiorts may be of great national value. But care must 
be taken that this guidance and help is as accessible to the higher strains of the 
working class population when in need of it as to the lower; lest the race should 
degenerate. 



IV, vn, 1. 


Forms of 

wealth 

among 

barbarous 

peoples. 


CHAPTER VIL 

THE GROWTH OP WEALTH. 


§ 1 . In this chapter it is not necessary to distinguish 
the points of view in which wealth is regarded as the object 
of consumption and as an agent of production; we are 
concerned with the growth of wealth simply, and we have 
no need to emphasize its uses as capital. 

The earliest forms of wealth were probably implements 
for hunting and fishing, and personal ornaments; and, in 
cold countries, clothing and huts^. During this stage the 
domestication of animals began; but at first they were 
probably cared for chiefly for their own sake, because they 
were beautiful, and it was pleasant to have them; they 
were, like articles of personal ornament, desired because of 
the immediate gratification to be derived from their pos- 
session rather than as a provision against future needs 
Gradually the herds of domesticated animals increased; and 
during the pastoral stage they were at once the pleasure 
and the pride of their possessors, the outward emblens of 
social rank, and by far the most important store of wealth 
accumulated as a provision against future needs. 

‘ A short but suggestive study of the growth of wealth in its early forms, and 
of the arts of life, is given in Tylor^s Anthropology. 

* Bagehot {Economic Studies^ pp. 163 — 5), after quoting the* evidence which 
Gallon has collected on the keeping of pet animals by savage tribes, points out 
that we find here a good illustration of the fact that however careless a savage 
race may be for the future, it cannot avoid making some provision for it. A bow, 
a fishing-net, which will do its work well in getting food for to-day, must be of 
service for many days to come: a horse or a canoe that will carry one well to-day, 
must be a stored-up source of many future enjo 3 nnent 8 . The least provident of 
barbaric despots may raise a massive pile of buildings, because it is the most 
palpable proof of his present wealth and power. 



EARLY FORMS OF WEALTH 


221 


As numbers thickened and the people settled down to iv, vn, i. 
agriculture, cultivated land took the first place in the inven- FormTof 
tory of wealth; and that part of the value of the land which 
was due to improvements (among which wells held a con-«fag?so^ 

^ ^ , civiliza- 

spicuous place) became the chief element of capital, in the tion. 
narrower sense of the term. Next in importance came 
houses, domesticated animals, and in some places boats and 
ships; but the implements of production, whether for use 
in agriculture or in domestic manufactures, remained for a 
long time of little value. In some places, however, precious 
stones and the precious metals in various forms became early 
a leading object of desire and a recognized means of hoarding 
wealth; while, to say nothing of the palaces of monarchs, 
a large part of social wealth in many comparatively rude 
civilizations took the form of edifices for public purposes, 
chiefly religious, and of roads and bridges, of canals and 
irrigation works. 

For some thousands of years these remained the chief Until 
forms of accumulated wealtL In towns indeed houses and Sre^was 
household furniture took the first place, and stocks of the^f^x^n- 
more expensive of raw materials counted for a good deal; but 

^ ^ ’ ot auxiliary 

though the inhabitants of the towns had often more wealth capital, 
per head than those of the country, their total numbers were 
small; and their aggregate wealth was very much less than 
that of the country. During all this time the only trade that 
used very expensive implements was the trade of carrying 
goods by water: the weaver’s looms, the husbandman’s ploughs 
and the blacksmith’s anvils were of simple construction and 
were of little account beside the merchant’s ships. But in 
the eighteenth century England inaugurated the era of 
expensive implements. 

The implements of the English farmer had been rising But in 
slowly in value for a long time; but the progress was quick- vearathey 
ened in the eighteenth century. After a while the use first 
of water power and then of steam power caused the rapid 
substitution of expensive machinery for inexpensive hand 
tools in one department of production after another. As in 
earlier times the most expensive implements were ships and 
in some cases canals for navigation and irrigation, so now 



222 


GROWTH OF WEALTH 


IV, vn, 1. they are the means of locomotion in general; — railways and 
tramways, canals, docks and ships, telegraph and telephone 
systems and water- works: even gas-works might almost come 
under this head, on the ground that a great part of their 
plant is devoted to distributing the gas. After these come 
mines and iron and chemical works, ship-building yards, 
printing-presses, and other large factories full of expensive 
machinery. 

On whichever side we look we find that the progress and 
diffusion of knowledge are constantly leading to the adoption 
of new processes and new machinery which economize human 
effort on condition that some of the effort is spent a good 
while before the attainment of the ultimate ends to which it 
is directed. It is not easy to measure this progress exactly, 
because many modem industries had no counterpart in ancient 
times. But let us compare the past and present conditions 
of the four great industries the products of which have not 
changed their general character: viz. agriculture, the building, 
the cloth-making, and the carrying trades. In the first two of 
these hand work still retains an important place: but even 
in them there is a great development of expensive machinery. 
Compare for instance the rude implements of an Indian 
Ryot even of to-day with the equipment of a progressive 
Lowland farmer^; and consider the brick-making, mortar- 
making, sawing, planing, moulding and slotting machines 
of a modern builder, his steam cranes and his electric light. 
And if we turn to the textile trades, or at least to those 
of them which make the simpler products, we find each 


^ The fann implements for a first class Kyot family, including six or seven 
adult males, are a few light ploughs and hoes chiefly of wood, of the total value of 
about 13 rupees (Sir G. Phear, Aryan Village, p. 233) or the equivalent of their 
work for about a month; while the value of the machinery alone on a well 
equipped large modem arable farm amounts to £3 an acre {Equipment of the 
Farm, edited by J, C. Morton) or say a year’s work for each person employed. 
They include steam-engines, trench, subsoil and ordinary ploughs, some to be 
worked by steam and some by horse power; various gmbbers, harrows, rollers, 
clod-crushers, seed and manure drills, horse hoes, rakes, hay-making, mowing and 
reaping machines, steam or horse threshing, chaff cutting, turnip cutting, hay- 
pressing machines and a multitude of others. Meanwhile there is an increasing 
use of silos and covered yards, and constant improvements in the fittings of the 
dairy and other tarm buildings, all of which give great economy of effort in the 
long run, but require a larger share of it to be spent in prepf^yfng the way for the 
direct work of the farmer in raising agricultural produce. 



MODSBN lOBMS OF WEALTH 


223 


operative in early times content with implements the cost of iv, vn, 2. 
which was equivalent to but a few months of his labour; 
while in modern times it is estimated that for each man, 
woman and child employed there is a capital in plant alone 
of more than £200, or say the equivalent of five years’ labour. 

Again the cost of a steam-ship is perhaps equivalent to the 
labour for fifteen years or more of those who work her ; while 
a capital of about £1000,000,000 invested in railways in 
England and Wales is equivalent to the work for more than 
twenty years of the 300,000 wage-earners employed on 
them. 

§ 2. As civilization has progressed, man has always been And they 
developing new wants, and new and more expensive ways t^J^continue 
of gratifying them. The rate of progress has sometimes been 
slow, and occasionally there has even been a great retrograde 
movement; but now we are moving on at a rapid pace that 
grows qilicker every year; and we cannot guess where it will 
stop. On every side further openings are sure to offer them- 
selves, all of which will tend to change the character of our 
social and industrial life, and to enable us to turn to account 
vast stores of capital in providing new gratifications and new 
ways of economizing effort by expending it in anticipation 
of distant wants. There seems to be no good reason for 
believing that we are anywhere near a stationary state in 
which there will be no new important wants to be satisfied ; 
in which there will be no more room for profitably investing 
present effort in providing for the future, and in which the 
accumulation of wealth will cease to have any reward. The 
whole history of man shows that his wants expand with the 
growth of his wealth and knowledge^. 

* For instance, improvements which have recently been made in some American 
cities indicate that by a sufficient outlay of capital each house could be supplied 
with what it does require, and relieved of what it does not, much more effectively 
than now, so as to enable a large part of the population to live in towns and yet 
be free from many of the present evils of town life. The first step is to make 
under all the streets large tunnels, in which many pipes and wires can be laid 
side by side, and repaired when they get out of order, without any interruption 
of the general traffic and without great expense. Motive power, and possibly 
even heat, might then be generated at great distances from the towns (in some 
cases in coal-mines), and laid on wherever wanted. Soft water and spring water, 
and perhaps even sea water and ozonized air, might be laid on in separate pipes 
to nearly every house; while steam-pipes might be used for giving warmth in 



224 


GROWTH OF WEALTH 


IV, VII, 3. 
And 

meanwhile 
there has 
been and 
probably 
will be 
a parallel 
increase in 
the power 
to accumu- 
late. 


The slow 
and fitful 
develop- 
ment of the 
habit of 
providing 
for the 
future. 


And with the growth of openings for the investment of 
capital there is a constant increase in that surplus of pro- 
duction over the necessaries of life, which gives the power 
to save. When the arts of production were rude, there was 
very little surplus, except where a strong ruling race kept 
the subject masses hard at work on the bare necessaries of 
life, and where the climate was so mild that those necessaries 
were small and easily obtained. But every increase in the 
arts of production, and in the capital accumulated to assist 
and support labour in future production, increased the surplus 
out of which more wealth could be accumulated. After a 
time civilization became possible in temperate and even in 
cold climates; the increase of material wealth was possible 
under conditions which did not enervate the worker, and did 
not therefore destroy the foundations on which it rested^. 
Thus from step to step wealth and knowledge have grown, 
and with every step the power of saving wealth and extend- 
ing knowledge has increased. 

§ 3. The habit of distinctly realizing the future and 
providing for it has developed itself slowly and fitfully in 
the course of man’s history. Travellers tell us of tribes 
who might double their resources and enjoyments without 
increasing their total labour, if they would only apply a 
little in advance the means that lie within their power 
and their knowledge; as, for instance, by fencing in their 
little plots of vegetables against the intrusion of wild 
animals. 

But even this apathy is perhaps less strange than the 


winter, and compressed air for lowering the heat of summer; or the heat might 
be supplied by gas of great heating power laid on in special pipes, while light 
was derived from gas specially suited for the purpose or from electricity; and 
every house might be in electric communication with the rest of the town. All 
unwholesome vapours, including those given off by any domestic fires which were 
still used, might be carried away by strong draughts through long conduits, to 
be purified by passing through lEtrge furnaces and thence away through huge 
chinmeys into the higher air. To carry out such a scheme in the towns of 
England would require the outlay of a much larger capital than has been 
absorbed by our railways. This conjecture as to the ultimate course of town 
improvement may be wide of the truth; but it serves to indicate one of very 
many ways in which the experience of the past foreshadows broad openings 
for investing present effort in providing the means of satisfying our wants in 
the future. 

^ Comp. Appendix A. 



SLOW AND FITFUL GROWTH OF HABITS OF SAVING 


226 


wastefulness that is found now among some classes in our iv, vn,3. 
own country. Cases are not rare of men who alternate be- 
tween earning two or three pounds a week and being reduced 
to the verge of starvation: the utility of a shilling to them 
when they are in employment is less than that of a penny 
when they are out of it, and yet they never attempt to make 
provision for the time of need^. At the opposite extreme 
there are misers, in some of whom the passion for saving 
borders on insanity; while, even among peasant proprietors 
and some other classes, we meet not unfrequently with people 
who carry thrift so far as to stint themselves of necessaries, 
and to impair their power of future work. Thus they lose 
every way: they never really enjoy life; while the income 
which their stored-up wealth brings them is less than they 
would have got from the increase of their earning power, if 
they had invested in themselves the wealth that they have 
accumulated in a material form. 

In India, and to a less extent in Ireland, we find people 
who do indeed abstain from immediate enjoyment and save 
up considerable sums with great self-sacrifice, but spend all 
their savings in lavish festivities at funerals and marriages. 

They make intermittent provision for the near future, but 
scarcely any permanent provision for the distant future : the 
great engineering works by which their productive resources 
have been so much increased, have been made chiefly with 
the capital of the much less self-denying race of Englishmen. 

Thus the causes which control the accumulation of wealth 
difier widely in different countries and different ages. They 
are not quite the same among any two races, and perhaps 
not even among any two social classes in the same race. 

They depend much on social and religious sanctions; and it 
is remarkable how, when the binding force of custom has 
been in any degree loosened, differences of personal character 
will cause neighbours brought up under like conditions to 
differ from one another more widely and more frequently in 
their habits of extravagance or thrift than in almost any 
other respect. 

^ They “discount” future benefits (comp. Book III. ch. v. § 3) at the rate ol 
many thousands per cant, per annum. 


M. 


8 



220 GROWTH OF WEALTH 

IV, vn,! §4. The thriftlessness of early times was in a great 
Secu^as measure due to the want of security that those who made 
oUaT^g ” provision for the future would enjoy it: only those who were 
already wealthy were strong enough to hold what they had 
saved; the laborious and self-denying peasant who had heaped 
up a little store of wealth only to see it taken from him by a 
stronger hand, was a constant warning to his neighbours to 
enjoy their pleasure and their rest when they could. The 
border country between England and Scotland made little 
progress so long as it was liable to incessant forays; there was 
very little saving by the French peasants in the eighteenth 
century when they could escape the plunder of the tax- 
gatherer only by appearing to be poor, or by Irish cottiers, 
who, on many estates, even forty years ago, were compelled 
to follow the same course in order to avoid the landlords’ 
claims of exorbitant rents. 

Insecurity of this kind has nearly passed away from the 
civilized world. But we are still suffering in England from 
the effects of the Poor-law which ruled at the beginning of 
last century, and which introduced a new form of insecurity 
for the working classes. For it arranged that part of their 
wages should, in effect, be given in the form of poor relief; 
and that this should be distributed among them in inverse 
proportion to their industry and thrift and forethought, so 
that many thought it foolish to make provision for the future. 
The traditions and instincts which were fostered by that evil 
experience are even now a great hindrance to the progress of 
the working classes; and the principle which nominally at 
least underlies the present Poor-law, that the State should 
take account only of destitution and not at all of merit, acts 
in the same direction, though with less force. 

Insecurity of this kind also is being diminished: the 
growth of enlightened views as to the duties of the State 
and of private persons towards the poor, is tending to make 
it every day more true that those who have helped them- 
selves and endeavoured to provide for their own future will 
be cared for by society better than the idle and the thought- 
less. But the progress in this direction is still slow, and 
there remains much to be done yet* 



MOTIVES OP SAVING 


227 


§5. The growth of a money-economy and of modem iv.to.s 
habits of business does indeed hinder the accumulation of The 
wealth by putting new temptations in the way of those who fmoney-* 
are inclined to live extravagantly. In old times if a man®?®'*®"'? 
wanted a good house to live in he must build it himself; tempta- 
now he finds plenty of good houses to be hired at a rent, extrava- 
Formerly, if he wanted good beer he must have a good brew- 
house, now he can buy it more cheaply and better than he 
could brew it. Now he can borrow books from a library 
instead of buying them; and he can even furnish his house 
before he is ready to pay for his furniture. Thus in many 
ways the modern systems of buying and selling, and lending 
and borrowing, together with the growth of new wants, lead 
to new extravagances, and to a subordination of the interests 
of the future to those of the present. 

But on the other hand, a money-economy increases the but also 
variety of the uses between which a person can distribute cerulnty 
his future expenditure. A person who in a primitive state 
of society stores up some things against a future need, may 
find that after all he does not need those things as much what is 
as others which he has not stored up : and there are many the future, 
future wants against which it is impossible to provide 
directly by storing up goods. But he who has stored up 
capital from which he derives a money income can buy what 
he will to meet his needs as they arise^. 

Again, modern methods of business have brought with And it has 
them opportunities for the safe investment of capital in such people who 
ways as to yield a revenue to persons who have no good 
opportunity of engaging in any business, — not even in 
of agriculture, where the land will under some conditions act full fruits 
as a trustworthy savings-bank. These new opportunities ° 
have induced some people who would not otherwise have 
attempted it to put by something for their own old age. And, 
what has had a far greater effect on the growth of wealth, 
it has rendered it far easier for a man to provide a secure 
income for his wife and children after his death: for, after 
all, family affection is the main motive of saving. 


» Comp. III. ?. 2. 



228 


IV, VII, 6. 

A few 
people 
save for 
their own 
sakes: 


but the 
chief 
motive of 
saving is 
family 
affection. 


GROWTH OF WEALTH 

§ 6. There are indeed some who find an intense pleasure 
in seeing their hoards of wealth grow up under their hands, 
with scarcely any thought for the happiness that may be 
got from its use by themselves or by others. They are 
prompted partly by the instincts of the chase, by the desire to 
outstrip their rivals ; by the ambition to have shown ability 
in getting the wealth, and to acquire power and social position 
by its possession. And sometimes the force of habit, started 
when they were really in need of money, has given them, by 
a sort of refiex action, an artificial and unreasoning pleasure 
in amassing wealth for its own sake. But were it not for the 
family affections, many who now work hard and save carefully 
would not exert themselves to do more than secure a comfort- 
able annuity for their own lives; either by purchase from an 
insurance company, or by arranging to spend every year, after 
they had retired from work, part of their capital as well as 
all their income. In the one case they would leave nothing 
behind them: in the other only provision for that part of 
their hoped-for old age, from which they had been cut off by 
death. That men labour and save chiefiy for the sake of 
their families and not for themselves, is shown by the fact 
that they seldom spend, after they have retired from work, 
more than the income that comes in from their savings, 
preferring to leave their stored-up wealth intact for their 
families; while in this country alone twenty millions a year 
are saved in the form of insurance policies and are available 
only after the death of those who save them. 

A man can have no stronger stimulus to energy and 
enterprise than the hope of rising in life, and leaving his 
family to start from a higher round of the social ladder than 
that on which he began. It may even give him an over- 
mastering passion which reduces to insignificance the desire 
for ease, and for all ordinary pleasures, and sometimes even 
destroys in him the finer sensibilities and nobler aspira- 
tions. But, as is shown by the marvellous growth of wealth 
in America during the present generation, it makes him a 
mighty producer and accumulator of riches; unless indeed 
he is in too great a hurry to grasp the social position which 
his wealth will give him : for his ambition may then lead him 



SOURCES OP SAVING 


229 


into as great extravagance as could have been induced by an 
improvident and self-indulgent temperament. 

The greatest savings are made by those who have been 
brought up on narrow means to stern hard work, who have 
retained their simple habits, in spite of success in business, 
and who nourish a contempt for showy expenditure and a 
desire to be found at their death richer than they had been 
thought to be. This type of character is frequent in the 
quieter parts of old but vigorous countries, and it was very 
common among the middle classes in the rural districts of 
England for more than a generation after the pressure of the 
great French war and the heavy taxes that lingered in its 
wake. 

§ 7. Next, as to the sources of accumulation. The power 
to save depends on an excess of income over necessary 
expenditure; and this is greatest among the wealthy. In 
this country most of the larger incomes, but only a few of 
the smaller, are chiefly derived from capital. And, early in 
the present century, the commercial classes in England had 
much more saving habits than either the country gentlemen 
or the working classes. These causes combined to make 
English economists of the last generation regard savings as 
made almost exclusively from the profits of capital. 

But even in modern England rent and the earnings of 
professional men and hired workers are an important source 
of accumulation: and they have been the chief source of it 
in all the earlier stages of civilization^. Moreover, the middle 
and especially the professional classes have always denied 
themselves much in order to invest capital in the education 
of their children; while a great part of the wages of the 
working classes is invested in the physical health and strength 
of their children. The older economists took too little account 
of the fact that human faculties are as important a means of 
production as any other kind of capital; and we may conclude, 
in opposition to them, that any change in the distribution of 
wealth which gives more to the wage receivers and less to 
the capitalists is likely, other things being equal, to hasten 
the increase of material production, and that it will not 

^ Comp. Prineiplis 0 / Political Economy ^ by Richard Jonei. 


IV, VII, 7. 


The source 
of accumu- 
lation is 
surplus 
income; 
whether 
that 
derived 
from 
capital, 


or rent, the 
earnings 
of pro- 
fessional 
men, and 
of hired 
workers. 



230 


GROWTH OP WEALTH 


IV, m, 8. perceptibly retard the storing-up of material wealth. Of 
course other things would not be equal if the change were 
brought about by violent methods which gave a shock to 
public security. But a slight and temporary check to the 
accumulation of material wealth need not necessarily be an 
evil, even from a purely economic point of view, if, being 
made quietly and without disturbance, it provided better 
opportunities for the great mass of the people, increased their 
efficiency, and developed in them such habits of self-respect 
as to result in the growth of a much more efficient race 
of producers in the next generation. For then it might do 
more in the long-run to promote the growth of even material 
wealth than great additions to our stock of factories and 
steam-engines. 

The public A. people among whom wealth is well distributed, and 

accumula- ^ 

tioMof who have high ambitions, are likely to accumulate a great 
deal of public property; and the savings made in this form 
alone by some well-to-do democracies form no inconsiderable 
part of the best possessions which our own age has inherited 
from its predecessors. The growth of the co-operative move- 
ment in all its many forms, of building societies, friendly 
societies, trades-unions, of working men’s savings-banks etc., 
shows that, even so far as the immediate accumulation of 
material wealth goes, the resources of the country are not, as 
the older economists assumed, entirely lost when they are 
spent in paying wages^. ^ 

§ 8 . Having looked at the development of the methods 
the ^tn- of saving and the accumulation of wealth, we may now return 
commodity to that analysis of the relations between present and deferred 
prese^und gratifications, which we began from another point of view in 
^rred study of Demand^. 

We there saw that anyone, who has a stock of a com- 
modity which is applicable to several uses, endeavours to 

^ It must however be admitted that what passes by the name of public 
property is often only private wealth borrowed on a mortgage of future public 
revenue. Municipal gas-works for instance are not generally the results of 
public accumulations. They were built with wealth saved by private persons, 
and borrowed on public account. 

• Above, III. ▼. 


aemocra- 

cies. 


Co- 

operation. 


We must 
revert to 



CHOICE BETWEEN PRESENT AND DEFERRED BENEFITS 231 

distribute it between them all in such a way as to give iv,Tn,8. 
him the greatest satisfaction. If he thinks he could obtain 
more satisfaction by transferring some of it from one use 
to another he will do so. If, therefore, he makes his distri- 
bution rightly, he stops in applying it to each several use at 
such a point that he gets an equal amount of good out of the 
application that he is only just induced to make of it to each 
separate use; (in other words, he distributes it between the 
different uses in such a way that it has the same marginal 
utility in each). 

We saw, further, that the principle remains the same 
whether all the uses are present, or some are present and 
others deferred: but that in this latter case some new con- 
siderations enter, of which the chief are, firstly, that the 
deferring of a gratification necessarily introduces some un- 
certainty as to its ever being enjoyed; and secondly, that, 
as human nature is constituted, a present gratification is 
generally, though not always, preferred to a gratification that 
is expected to be equal to it, and is as certain as anything 
can be in human life. 

A prudent person who thought that he would derive A person 
equal gratifications from equal means at all stages of his life, though^^e 
would perhaps endeavour to distribute his means equally over present 
his whole life: and if he thought that there was a danger 
that his power of earning income at a future date would future, 
run short, he would certainly save some of his means for does not 
a future date. He would do this not only if he thought Sg^^ans 
that his savings would increase in his hands, but even 
if he thought they would diminish. He would put by 
a few fruit and eggs for the winter, because they would 
then be scarce, though they would not improve by keeping. 

If he did not see his way to investing his earnings in trade 
or on loan, so as to derive interest or profits from them, he 
would follow the example of some of our own forefathers 
who accumulated small stores of guineas which they carried 
into the country, when they retired from active life. They 
reckoned that the extra gratification which they could get 
by spending a few more guineas while money was coming 
in fast, would be of less service to them than the comfort 



232 


GROWTH OF WEALTH 


IV, vn, 8. 


Some 
saving 
might 
therefore 
conceiv- 
ably be 
made even 
if interest 
were 

negative; 


but it is 
equally 
true that 
some work 
would be 
done even 
if there 
were a 
penalty 
for it. 


We may 
therefore 
call inte- 
rest the 
reward of 
waiting: 


not of 
abstinence. 


which those guineas would buy for them in their old age. 
The care of the guineas cost them a great deal of trouble; 
and no doubt they would have been willing to pay some 
small charge to any one who would have relieved them from 
the trouble without occasioning them any sort of risk. 

We can therefore imagine a state of things in which 
stored-up wealth could be put to but little good use; in 
which many persons wanted to make provision for their 
own future; while but few of those who wanted to borrow 
goods, were able to offer good security for returning them, 
or equivalent goods, at a future date. In such a state of 
things the postponement of, and waiting for enjoyments 
would be an action that incurred a penalty rather than 
reaped a reward: by handing over his means to another to 
be taken care of, a person could only expect to get a sure 
promise of something less, and not of something more than 
that which he lent: the rate of interest would be negative^. 

Such a state of things is conceivable. But it is also 
conceivable, and almost equally probable, that people may be 
so anxious to work that they will undergo some penalty as 
a condition of obtaining leave to work. For, as deferring the 
consumption of some of his means is a thing which a prudent 
person would desire on its own account, so doing some work 
is a desirable object on its own account to a healthy person. 
Political prisoners, for instance, generally regard it as a favour 
to be allowed to do a little work. And human nature being 
what it is, we are justified in speaking of the interest on capital 
as the reward of the sacrifice involved in the waiting for the 
enjoyment of material resources, because few people would 
save much without reward; just as we speak of wages as 
the reward of labour, because few people would work hard 
without reward. 

The sacrifice of present pleasure for the sake of future, 
has been called abstinence by economists. But this term has 
been misunderstood: for the greatest accumulators of wealth 
are very rich persons, some of whom live in luxury, and 


* The suggestion that the rate of interest may conceivably become a negative 
quantity was discussed by Foxwell in a paper on Some Social Aspects of Banking^ 
read before the Bankers’ Institute in January, 1886. 



THE REWARD OF WAITING 


233 


certainly do not practise abstinence in that sense of the iv, ▼n,8. 
term in which it is convertible with abstemiousness. What 
economists meant was that, when a person abstained from 
consuming anything which he had the power of consuming, 
with the purpose of increasing his resources in the future, his 
abstinence from that particular act of consumption increased 
the accumulation of wealth. Since, however, the term is 
liable to be misunderstood, we may with advantage avoid its 
use, and say that the accumulation of wealth is generally the 
result of a postponement of enjoyment, or of a waiting for it^. 

Or, in other words again, it is dependent on man’s prospec- 
tiveness; that is, his faculty of realizing the future. 

The demand price” of accumulation, that is, the future 
pleasure which his surroundings enable a person to obtain 
by working and waiting for the future, takes many forms: 
but the substance is always the same. The extra pleasure 
which a peasant who has built a weatherproof hut derives 
from its usance, while the snow is drifting into those of his 
neighbours who have spent less labour on building theirs, is 
the price earned by his working and waiting. It represents 
the extra productiveness of efforts wisely spent in providing 
against distant evils, or for the satisfaction of future wants, 
as compared with that which would have been derived from 
an impulsive grasping at immediate satisfactions. Thus it 
is similar in all fundamental respects to the interest which 
the retired physician derives from the capital he has lent to 
a factory or a mine to enable it to improve its machinery; 
and on account of the numerical definiteness of the form in 
which it is expressed, we may take that interest to be the type 
of and to represent the usance of wealth in other forms. 

It matters not for our immediate purpose whether the 
power over the enjoyment for which the person waits, was 
earned by him directly by labour, which is the original source 
of nearly all enjoyment; or was acquired by him from others, 

* Karl Man and his followers have found much amusement in contemplating 
the accumulations of wealth which result from the abstinence of Baron Rothschild, 
which they contrast with the extravagance of a labourer who feeds a family of 
seven on seven shillings a week; and who, living up to his full income, practises 
no economic abstinence at all. The argument that it is Waiting rather than 
Abstinence, which is rewarded by Interest and is a factor of production, was given 
by Macvane in the Harvard Journal of Economics for July, 1887. 



3S4 


IV, vix, 9. 


The 

greater the 
rate of 
gain from 
present 
sacrifice 
the greater 
will often 
be the 
saving, 


but not 
always. 


So the 
higher the 
rate of 
interest 
the greater 
the saving 
as a rule, 


GROWTH OF WEALTH 

by exchange or by inheritance, by legitimate trade or by un- 
scrupulous forms of speculation, by spoliation or by fraud: 
the only points with which we are just now concerned are 
that the growth of wealth involves in general a deliberate 
waiting for a pleasure which a person has (rightly or wrongly) 
the power of commanding in the immediate present, and that 
his willingness so to wait depends on his habit of vividly 
realizing the future and providing for it. 

§ 9. But let us look more closely at the statement that, 
as human nature is constituted, an increase in the future 
pleasure which can be secured by a present given sacrifice 
will in general increase the amount of present sacrifice that 
people will make. Suppose, for instance, that villagers have 
to get timber for building their cottages from the forests; 
the more distant these are, the smaller will be the return of 
future comfort got by each day’s work in fetching the wood, 
the less will be their future gain from the wealth accumulated 
probably by each day’s work: and this smallness of the return 
of future pleasure, to be got at a given present sacrifice, will 
tend to prevent them from increasing the size of their cottages ; 
and will perhaps diminish on the whole the amount of labour 
they spend in getting timber. But this rule is not without 
exception. For, if custom has made them familiar with cot- 
tages of only one fashion, the further they are from the woods, 
and the smaller the usance to be got from the produce of one 
day’s work, the more days’ work will they give. 

And similarly if a person expects, not to use his wealth 
himself, but to let it out on interest, the higher the rate of 
interest the higher his reward for saving. If the rate of 
interest on sound investments is 4 per cent., and he gives up 
£100 worth of enjoyment now, he may expect an annuity of 
£4 worth of enjoyment: but he can expect only £3 worth, 
if the rate is 3 per cent. And a fall in the rate of interest will 
generally lower the margin at which a person finds it just 
not worth while to give up present pleasures for the sake of 
those future pleasures that are to be secured by saving some 
of his means* It will therefore generally cause people to 
consume a Uttle more now, and to make less provision for 
future enjoyment. But this rule is not without exception. 



THE REWARD OF WAITING 


236 


Sir Josiah Child remarked more than two centuries iv, vii, 9. 
ago, that in countries in which the rate of interest is high, bumwe 
merchants ‘‘when they have gotten great wealth, leave 
trading” and lend out their money at interest, “the gain 
thereof being so easy, certain and great; whereas in other 
countries where interest is at a lower rate, they continue 
merchants from generation to generation, and enrich them- 
selves and the state.” And it is as true now, as it was then, 
that many men retire from business when they are yet 
almost in the prime of life, and when their knowledge of 
men and things might enable them to conduct their business 
more efficiently than ever. Again, as Sargant has pointed 
out, if a man has decided to go on working and saving till 
he has provided a certain income for his old age, or for his 
family after his death, he will find that he has to save more 
if the rate of interest is low than if it is high. Suppose, for 
instance, that he wishes to provide an income of £400 a year 
on which he may retire from business, or to insure £400 a 
year for his wife and children after his death: if then the 
current rate of interest is 5 per cent., he need only put by 
£8,000, or insure his life for £8,000; but if it is 4 per cent., 
he must save £10,000, or insure his life for £10,000. 

It is then possible that a continued fall in the rate of But in 
interest may be accompanied by a continued increase in the ©^ceptfons 
yearly additions to the world’s capital. But none the less is tJerateof 
it true that a fall in the distant benefits to be got by 
given amount of working and waiting for the future does make 
tend on the whole to diminish the provision which people thaiTft^^^* 
make for the future ; or in more modern phrase, that a fall 
in the rate of interest tends to check the accumulation of 
wealth. For though with man’s growing command over the 
resources of nature, he may continue to save much even with 
a low rate of interest; yet while human nature remains as it 
is every fall in that rate is likely to cause many more people 
to save less than to save more than they would otherwise 
have done^. 

' See also VI. vi. It may however be observed here that the dependence of 
the growth of capital on the high estimation of “future goods*’ appears to have 
been over-estimated by earlier writers; not under-estimated, as is argued by Prof. 
Bdhm-Bawerk. 



2S6 


GROWTH OF WEALTH 


IV, vn, 10. § 10. The causes which govern the accumulation of 

Provisional Wealth and its relation to the rate of interest have so many 
conclusion, points of contact with various parts of economic science, that 
the study of them cannot easily be brought together in one 
part of our inquiry. And although in the present Book we 
are concerned mainly with the side of supply; it has seemed 
necessary to indicate provisionally here something of the 
general relations between the demand for and the supply of 
capital. And we have seen that: — 

The accumulation of wealth is governed by a great 
variety of causes: by custom, by habits of self-control and 
realizing the future, and above all by the power of family 
afEection. Security is a necessary condition for it, and the 
progress of knowledge and intelligence furthers it in many 
ways. 

A rise in the rate of interest offered for capital, i.e, in 
the demand price for saving, tends to increase the volume of 
saving. For in spite of the fact that a few people who have 
determined to secure an income of a certain fixed amount for 
themselves or their family will save less with a high rate of 
interest than with a low rate, it is a nearly universal rule that 
a rise in the rate increases the desire to save; and it often 
increases the power to save, or rather it is often an indication 
of an increased efficiency of our productive resources: but 
the older economists went too far in suggesting that a rise 
of interest (or of profits) at the expense of wages always 
increased the power of saving: they forgot that from the 
national point of view the investment of wealth in the child 
of the working man is as productive as its investment in 
horses or machinery. 

It must however be recollected that the annual invest- 
ment of wealth is a small part of the already existing stock, 
and that therefore the stock would not be increased per- 
ceptibly in any one year by even a considerable increase in 
the annual rate of saving. 



STATISTICAL NOTE 


237 


Note on the Statistics op the Growth of Wealth. 

§ 11. The statistical history of the growth of wealth is singularly IV, th, 11. 
poor and misleading. This is partly due to difficulties inherent in any 
attempt to give a numerical measure of wealth which shall be appli- of national 
cable to different places and times, partly to the absence of systematic 
attempts to collect the necessary facts. The Government of the United direct: 
States does indeed ask for returns of every person’s property; and 
though the results thus obtained are not satisfactory, yet they are 
perhaps the best we have. 

Estimates of the wealth of other countries have to be based almqst they are 
exclusively on estimates of income, which are capitalized at various 
numbers of years’ purchase; this number being chosen with reference estimates 
(i) to the general rate of interest current at the time, (ii) to the extent income, 
to which the income derived from the use of wealth in any particular 
form is to be credited (a) to the permanent income-yielding power of 
the wealth itself; and (b) to either the labour spent in applying it, or 
the using up of the capital itself. This last head is specially important 
in the case of ironworks which depreciate rapidly, and still more in the 
case of such mines as are likely to be speedily exhausted; both must 
be capitalized at only a few years’ purchase. On the other hand, the 
income-yielding power of land is likely to increase; and where that is 
the case, the income from land has to be capitalized at a great number 
of years’ purchase (which may be regarded as making a negative pro- 
vision under the head of ii. 6). 

Land, houses, and live stock are the three forms of wealth which The money 
have been in the first rank of importance always and everywhere. But ^ 
land differs from other things in this, that an increase in its value is increased 
often chiefly due to an increase in its scarcity; and is therefore 
measure rather of growing wants, than of growing means of meeting 
wants. Thus the land of the United States in 1880 counted as of about 
equal value with the land of the United Kingdom, and about half that 
of France. Its money value was insignificant a hundred years ago; and 
if the density of population two or three hundred years hence is nearly 
the same in the United States as in the United Kingdom, the land of 
the former will then be worth at least twenty times as much as that 
of the latter. 

In the early middle ages the whole value of the land of England 
was much less than that of the few large-boned but small-sized animals 
that starved through the winter on it: now, though much of the best 
land is entered under the heads of houses, railways, etc.; though the 
live stock is now probably more than ten times as heavy in aggregate 
weight, and of better quality; and though there is now abundant 



238 


STATISTICAL NOTE ON THE GROWTH OF WEALTH 


IV, VII, 11. farming capital of kinds which were then unknown; yet agricultural 

land is now worth more than three times as much as the farm stock. 

The few years of the pressure of the great French war nearly doubled 
the nominal value of the land of England. Since then free trade, 
improvements in transport, the opening of new countries, and other 
causes have lowered the nominal value of that part of the land which 
is devoted to agriculture. And they have made the general purchasing 
power of money in terms of commodities rise in England relatively 
to the Continent. Early in the last century 25 fr. would buy more, and 
especially more of the things needed by the working classes, in France 
and Germany than £1 would in England. But now the advantage is 
the other way: and this causes the recent growth of the wealth of 
France and Germany to appear to be greater relatively to that of 
England than it really is. 

‘ When account is taken of facts of this class, and also of the fact 
that a fall in the rate of interest increases the number of years’ purchase 
at which any income has to be capitalized, and therefore increases the 
value of a property which yields a given income; we see that the 
estimates of national wealth would be very misleading, even if the 
statistics of income on which they were based were accurate. But 
still such estimates are not wholly without value. 

Sir R. Giffen’s Growth of Capital and Mr Chiozza Money’s Riches 
and Poverty contain suggestive discussions on many of the figures in 
the following table. But their divergences show the great uncertainty 


Country and 

Author of 
Estimate. 

Land. 

£ uiilliun. 

Houses, 

Ac. 

£ million. 

Farm- 

capital. 

£ milliou. 

OtlJer 
Wealth 
£ million. 

Total 
weal tin 
£ million. 

Wealth, 
per cap. 

£ 

England. 







1679 (Petty) 

144 

30 

36 

40 

250 

42 

1690 (Gregory King) 

180 

45 

25 

70 

320 

58 

1812 (Colquhouii) ... 

750 

300 

143 

653 

1,846 

180 

1885 (Gillen) 

1,333 

1,700 

382 

3,012 

6,427 

315 

United Kingdom. 







1812 (Colqulioun) ... 

1,200 

400 

228 

908 

2,736 

160 

1855 (Edleston) 

1,700 

550 

472 

1,048 

3,760 

130 

1865 (Gillen) 

1,864 

1,031 

620 

2,598 

6,113 

200 

1875 — 

2,007 

1,420 

668 

4,453 

8,548 

260 

1885 — 

1,691 

1,927 

622 

6,897 

10,037 

270 

1906 (Money) 

966 

2,827 

285 

7,326 

11,413 

265 

United States. 







1880 (Census) 

2,040 

2,000 

480 

4,208 

8,728 

175 

1890 — 





13,200 

208 

1900 — 





18,860 

247 

Fhance. 







1892 (de Foville) . . . 

3,000 

2,000 

400 

4,000 

9,400 

247 

Italy. 







1884 (Pantaleoni) ... 

1,160 

360 



1,920 

65 



STATISTICAL NOTE 


239 


of all such estimates. Mr Money’s estimate of the value of land, t.e. iv, vii, ii. 

agricultural land with farm buildings, is probably too low. Sir R. 

Giffen estimates the value of public property at £m. 600: and he 
omits public loans held at home, on the ground that the entries for 
them would cancel one another, , as much being debited under the head 
of public property as is credited under that of private property. But 
Mr Money reckons the gross value of pubho roads, parks, build- 
ings, bridges, sewers, lighting and water works, tramways etc. at 
£m. 1,650: and, after deducting from this £m. 1,200 for public loans, 
he gets £m. 450 for the net value of public property; and he thus 
becomes free to count public loans held at home under private property. 

He estimates the value of foreign stock exchange securities and other 
foreign property held in the United Kingdom at £m. 1,821. These 
estimates of wealth are mainly based on estimates of income: and, as 
regards the statistics of income, attention may be directed to Mr 
Bowley’s instructive analysis in National progress since 1882; and in 
The Economic Journal for September 1904. 

Sir R. Giffen estimates the wealth of the British Empire in 1903 


{Statistical Journal, Vol. 66, p. 584) thus: 

United Kingdom £m. 15,000 

Canada „ 1,350 

Australasia „ 1,100 

India „ 3,000 

South Africa „ 600 

Remainder of Empire ... „ 1,200 


A tentative history of changes in the relative wealth of different 
parts of England has been deduced by Rogers from the assessment of 
the several counties for the purpose of taxation. Le Vicomte d’Avenel’s 
great work UHistoire ^conomique de la Propriety d:c. 1200 — 1800 con- 
tains a rich store of materials as to France; and comparative studies 
of the growth of wealth in France and other nations have been made 
by Levasseur, Leroy Beaulieu, Neymarck and de Foville. 

Mr Crammond, addressing the Institute of Bankers in March 1919, 
estimated the national wealth of the United Kingdom to be £m. 24,000, 
and the national income to be £m. 3,600. He reckoned the net value 
of the country’s foreign investments to have fallen to £m. 1,600, she 
having recently sold securities amoimting to £m. 1,600; and borrowed 
another £m. 1,400. On the balance she appeared to be a creditor to 
the amount of £m. 2,600: but a great part of this amount cannot be 
reckoned as adequately secured. 



CHAPTER VIII. 


INDUSTRIAL ORGANIZATION. 


IV, vni, 1. 
The 

doctrine 
that or- 
ganization 
increases 
efficiency 
is old. 


Biologists 
and econo- 
mists have 
studied the 
influence 
which the 
struggle 
for survival 
exerts on 
organiza- 
tion. 


§1„ Writers on social science from the time of Plato 
downwards have delighted to dwell on the increased efficiency 
which labour derives from organization. But in this, as in 
other cases, Adam Smith gave a new and larger significance 
to an old doctrine by the philosophic thoroughness with 
which he explained it, and the practical knowledge with 
which he illustrated it. After insisting on the advantages of 
the division of labour, and pointing out how they render it 
possible for increased numbers to live in comfort on a limited 
territory, he argued that the pressure of population on the 
means of subsistence tends to weed out those races who 
through want of organization or for any other cause are 
unable to turn to the best account the advantages of the 
place in which they live. 

Before Adam Smith’s book had yet found many readers, 
biologists were already beginning to make great advances 
towards understanding the real nature of the differences 
in organization which separate the higher from the lower 
animals; and before two more generations had elapsed, 
Malthus’ historical account of man’s struggle for existence 
started Darwin on that inquiry as to the effects of the 
struggle for existence in the animal and vegetable world, 
which issued in his discovery of the selective influence 
constantly played by it. Since that time biology has more 
than repaid her debt; and economists have in their turn 
owed much to the many profound analogies which have 
been discovered between social and especially industrial 



MUTUAL DEBTS OF BIOLOGY AND ECONOMICS 


241 


organization on the one side and the physical organization of iv,viii,i. 
the higher animals on the other. In a few cases indeed the 
apparent analogies disappeared on closer inquiry; but many 
of those which seemed at first sight most fanciful, have 
gradually been supplemented by others, and have at last 
established their claim to illustrate a fundamental unity of 
action between the laws of nature in the physical and in the 
moral world. This central unity is set forth in the general 
rule, to which there are not very many exceptions, that the 
development of the organism, whether social or physical, 
involves an increasing subdivision of functions between its 
separate parts on the one hand, and on the other a more 
intimate connection between them^. Each part gets to be 
less and less self-sufficient, to depend for its wellbeing more 
and more on other parts, so that any disorder in any 
part of a highly-developed organism will affect other parts 
also. 

This increased subdivision of functions, or ‘‘differentia- Uifferenti- 
tion,” as it is called, manifests itself with regard to industry Integra- 
in such forms as the division of labour, and the development 
of specialized skill, knowledge and machinery: while “inte- 
gration,’* that is, a growing intimacy and firmness of the 
connections between the separate parts of the industrial 
organism, shows itself in such forms as the increase of 
security of commercial credit, and of the means and habits 
of communication by sea and road, by railway and telegraph, 
by post and printing-press. 

The doctrine that those organisms which are the most 
highly developed, in the sense in which we have just used 
the phrase, are those which are most likely to survive in 
the struggle for existence, is itself in process of develop- 
ment. It is not yet completely thought out either in its 
biological or its economic relations. But we may pass to 
consider the main bearings in economics of the law that the 
struggle for existence causes those organisms to multiply 
which are best fitted to derive benefit from their environ- 
ment. 

‘ See a brilliant paper by Hackel on Arbettstheilwng in Menschen- und 
Thierleben and Schaffle^s Bau wnd Leben des aocialen Kdrpers. 



242 


INDOTTRIAL ORGANIZATION 


IV, Tin, 2. The law requires to be interpreted carefully: for the 

The law of fact that a thing is beneficial to its environment will not 
for^mvai ^7 sccure its survival either in the physical or in the 
requires moral world. The law of “survival of the fittest” states 

to be care- , • i i 

fully inter- that those orgamsms tend to survive which are best fitted 
preted. utilize the environment for their own purposes. Those 

that utilize the environment most, often turn out to be 
those that benefit those around them most; but sometimes 
they are injurious. 

Conversely, the struggle for survival may fail to bring 
into existence organisms that would be highly beneficial: 
and in the economic world the demand for any industrial 
arrangement is not certain to call forth a supply, unless it 
is something more than a mere desire for the arrangement, 
or a need for it. It must be an efficient demand; that is, 
it must take effect by offering adequate payment or some 
other benefit to those who supply it^. A mere desire on 
the part of employees for a share in the management and the 
profits of the factory in which they work, or the need on 
the part of clever youths for a good technical education, is 
not a demand in the sense in which the term is used when 
it is said that supply naturally and surely follows demand. 
Its This seems a hard truth: but some of its harshest features 

b&rslicsff 

features are softened down by the fact that those races, whose 
byto^^ members render services to one another without exacting 
direct recompense are not only the most likely to flourish 
for the time, but most likely to rear a large number of 
descendants who inherit their beneficial habits. 

Influence §2. Even in the vegetable world a species of plants, 
care^on^*^^^ however vigorous in its growth, which should be neglectful of 
interests of its seeds, would soon perish from the earth, 
species. ipjjg standard of family and race duty is often high in the 
animal kingdom; and even those predatory animals which 
we are accustomed to regard as the types of cruelty, which 
fiercely utilize the environment and do nothing for it in 

^ Like all other doctrines of the same class, this requires to be interpreted in 
the light of the fact that the effective demand of a purchaser depends on his 
means, as well as on his wants: a small want on the part of a rich man often has 
more effective force in controlling the business arrangements of the world th^ 
a great want on the part of a poor man. 



STRUGGLE FOR SURVIVAL 


243 


return, must yet be willing as individuals to exert themselves iv,Tni,2 
for the benefit of their offspring. And going beyond the 
narrower interests of the family to those of the race, we find 
that among so-called social animals, such as bees and ants, 
those races survive in which the individual is most energetic 
in performing varied services for the society without^ the 
prompting of direct gain to himself. 

But when we come to human beings, endowed with in man 
reason and speech, the influence of a tribal sense of duty in sacriace 
strengthening the tribe takes a more varied form. It is true deUbTrate 
that in the ruder stages of human life many of the services 
rendered by the individual to others are nearly as much due strength of 
to hereditary habit and unreasoning impulse, as are those of 
the bees and ants. But deliberate, and therefore moral, self- 
sacrifice soon makes its appearance; it is fostered by the 
far-seeing guidance of prophets and priests and legislators, 
and is inculcated by parable and legend. Gradually the un- 
reasoning sympathy, of which there are germs in the lower 
animals, extends its area and gets to be deliberately adopted 
as a basis of action: tribal affection, starting from a level 
hardly higher than that which prevails in a pack of wolves or 
a horde of banditti, gradually grows into a noble patriotism; 
and religious ideals are raised and purified. The races in 
which these qualities are the most highly developed are sure, 
other things being equal, to be stronger than others in 
war and in contests with famine and disease; and ultimately 
to prevail. Thus the struggle for existence causes in 
the long run those races of men to survive in which the 
individual is most willing to sacrifice himself for the 
benefit of those around him; and which are consequently 
the best adapted collectively to make use of their environ- 
ment. 

Unfortunately however not all the qualities which enable 
one race to prevail over another benefit mankind as a with the 
whole. It woifld no doubt be wrong to lay very much stress 
on the fact that warlike habits have often enabled half- 
savage races to reduce to submission others who were their 
superiors in every peaceful virtue; for such conquests have 
gradually increased the physical vigour of the world, and its 



244 


INDUSTRIAL ORGANIZATION 


iv,Tni,3. capacity for great things, and ultimately perhaps have done 
more good than harm. But there is no such qualification 
to the statement that a race does not establish its claim to 
deserve well of the world by the mere fact that it flourishes 
in the midst or on the surface of another race. For, though 
biology and social science alike show that parasites sometimes 
benefit in unexpected ways the race on which they thrive; 
yet in many cases they turn the peculiarities of that race to 
good account for their own purposes without giving any good 
^eciaiiy return. The fact that there is an economic demand for the 
cas^of a services of Jewish and Armenian money-dealers in Eastern 
Europe and Asia, or for Chinese labour in California, is not 
by itself a proof, nor even a very strong ground for believing, 
that such arrangements tend to raise the quality of human 
life as a whole. For, though a race entirely dependent on its 
own resources can scarcely prosper unless it is fairly endowed 
with the most important social virtues; yet a race, which has 
not these virtues and which is not capable of independent 
greatness, may be able to thrive on its relations with another 
race. But on the whole, and subject to grave exceptions, 
those races survive and predominate in which the best 
qualities are most strongly developed. 

The caste § 3. This influence of heredity shows itself nowhere more 
Sel^ur^ markedly than in social organization. For that must neces- 
bu* sarily be a slow growth, the product of many generations : it 
Sr?wbad£8 based on those customs and aptitudes of the great 

mass of the people which are incapable of quick change. 
In early times when religious, ceremonial, political, military 
and industrial organization were intimately connected, and 
were indeed but different sides of the same thing, nearly 
all those nations which were leading the van of the world^s 
progress were found to agree in having adopted a more or 
less strict system of caste: and this fact by itself proved 
that the distinction of castes was well suited to its environ- 
ment, and that on the whole it strengthened the races 
or nations which adopted it. For since it was a controlling 
factor of life, the nations which adopted it could not have 
generally prevailed over others, if the influence exerted by 
it had not been in the main beneficial. Their pre-eminence 



PRINCIPLE OF HEREDITY 


245 


proved not that it was free from defects, but that its ex- iv, vm, 3. 
cellences, relatively to that particular stage of progress, 
outweighed its defects. 

Again we know that an animal or a vegetable species 
may differ from its competitors by having two qualities, 
one of which is of great advantage to it; while the other 
is unimportant, perhaps even slightly injurious, and that 
the former of these qualities will make the species succeed 
in spite of its having the latter: the survival of which will 
then be no proof that it is beneficial. Similarly the struggle 
for existence has kept alive many qualities and habits in the 
human race which were in themselves of no advantage, but 
which are associated by a more or less permanent bond with 
others that are great sources of strength. Such instances 
are found in the tendency to an overbearing demeanour 
and a scorn for patient industry among nations that owe 
their advance chiefly to military victories; and again in the 
tendency among commercial nations to think too much of 
wealth and to use it for the purposes of display. But the 
most striking instances are found in matters of organization; 
the excellent adaptation of the system of caste for the special 
work which it had to do, enabled it to flourish in spite of its 
great faults, the chief of which were its rigidity, and its 
sacrifice of the individual to the interests of society, or rather 
to certain special exigencies of society. 

Passing over intermediate stages and coming at once to The same 
the modern organization of the Western world, we find it of the 
offering a striking contrast, and a no less striking resemblance, 
to the system of caste. On the one hand, rigidity has heenjjj^^^^j 
succeeded by plasticity: the methods of industry which were classes m 
then stereotjrped, now change with bewildering quickness; Western 
the social relations of classes, and the position of the indi-^®'^^^* 
vidual in his class, which were then definitely fixed by 
traditional rules, are now perfectly variable and change their 
forms with the changing circumstances of the day. But on 
the other hand, the sacrifice of the individual to the exigencies 
of society as regards the production of material wealth seems 
in some respects to be a case of atavism, a reversion to condi- 
tions which prevailed in the far-away times of the rule of 



246 


INDUSTRIAL ORGANIZATION 


IV, Tin, 4. 


Adam 
Smithes 
modera- 
tion, 
the ex- 
travagance 
of some 
of his 
followers. 


caste. For the division of labour between the different ranks 
of industry and between different individuals in the same 
rank is so thorough and uncompromising, that the real 
interests of the producer are sometimes in danger of being 
sacrificed for the sake of increasing the addition which his 
work makes to the aggregate production of material wealth. 

§ 4. Adam Smith, while insisting on the general advan- 
tages of that minute division of labour and of that subtle 
industrial organization which were being developed with 
unexampled rapidity in his time, was yet careful to indicate 
many points in which the system failed, and many incidental 
evils which it involved^. But many of his followers with 
less philosophic insight, and in some cases with less real 
knowledge of the world, argued boldly that whatever is, is 
right. They argued for instance that, if a man had a talent 
for managing business, he would be surely led to use that 
talent for the benefit of mankind: that meanwhile a like 
pursuit of their own interests would lead others to provide 
for his use such capital as he could turn to best account; and 
that his own interest would lead him so to arrange those in 
his employment that everyone should do the highest work of 
which he was capable, and no other; and that it would lead 
him to purchase and use all machinery and other aids to 
production, which could in his hands contribute more than 
the equivalent of their own cost towards supplying the wants 
of the world. 

This doctrine of natural organization contains more truth 
of the highest importance to humanity than almost any other 
which is equally likely to evade the comprehension of those 
who discuss grave social problems without adequate study: 
and it had a singular fascination for earnest and thoughtful 
minds. But its exaggeration worked much harm, especially 
to those who delighted most in it. For it prevented them 
from seeing and removing the evil that was intertwined with 
the good in the changes that were going on around them. 
It hindered them from inquiring whether many even of the 
broader features of modern industry might not be transi- 
tional, having indeed good work to do in their time, as the 
^ See above I. rr. 8; and below Appendix B, 8 and CL 



THE INDIVIDUAL IN RELATION TO SOaETY 


247 


caste system had in its time; but being, like it, serviceable iv,vin,6. 
chiefly in leading the way towards better arrangements for 
a happier age. And it did harm by preparing the way for 
exaggerated reaction against it. 

§ 5. Moreover the doctrine took no account of the They paid 
manner in which organs are strengthened by being used. 

Herbert Spencer has insisted with much force on the conditions 
that, if any physical or mental exercise gives pleasure and is u^er 
therefore frequent, those physical or mental organs which faculties 
are used in it are likely to grow rapidly. Among the lower developed? 
animals indeed the action of this rule is so intimately inter- 
woven with that of the survival of the fittest, that the 
distinction between the two need not often be emphasized. 

For as it might be guessed a 'priori^ and as seems to be 
proved by observation, the struggle for survival tends to 
prevent animals from taking much pleasure in the exercise 
of functions which do not contribute to their wellbeing. 

But man, with his strong individuality, has greater free- 
dom. He delights in the use of his faculties for their 
own sake; sometimes using them nobly, whether with the 
abandon of the great Greek burst of life, or under the control 
of a deliberate and steadfast striving towards important ends; 
sometimes ignobly, as in the case of a morbid development of 
the taste for drink. The religious, the moral, the intellectual 
and the artistic faculties on which the progress of industry 
depends, are not acquired solely for the sake of the things 
that may be got by them ; but are developed by exercise for 
the sake of the pleasure and the happiness which they them- 
selves bring: and, in the same way, that greater factor of 
economic prosperity, the organization of a well-ordered state, 
is the product of an infinite variety of motives; many of 
which have no direct connection with the pursuit of national 
wealth^. 

No doubt it is true that physical peculiarities acquired 
by the parents during their life-time are seldom if ever trans- 
mitted to their ofispring. But no conclusive case seems to 

^ MSan with his many motirM, as he may sat himself deltbeistely to encourage 
the growth of one pecuiiedty, may equally set bimself to check the growth of 
another: the slowness of progsess during the Middle Ages was partly due to 
a deliberate detestatien of leamiog. 



248 


INDUSTRIAL ORGANIZATION 


IV, VIII, 6. 


Changes in 
industrial 
structure 
must wait 
on the 
develop- 
ment of 
man; and 
therefore 
must be 
either 
gradual or 
unstable. 


have been made out for the assertion that the children of 
those who have led healthy lives, physically and morally, 
will not be born with a firmer fibre than they would have 
been had the same parents grown up under unwholesome 
influences which had enfeebled the fibre of their minds and 
their bodies. And it is certain that in the former case the 
children are likely after birth to be better nourished, and 
better trained; to acquire more wholesome instincts; and 
to have more of that regard for others and that self-respect, 
which are the mainsprings of human progress, than in the 
latter case^. 

It is needful then diligently to inquire whether the 
present industrial organization might not with advantage be 
so modified as to increase the opportunities, which the lower 
grades of industry have for using latent mental faculties, for 
deriving pleasure from their use, and for strengthening them 
by use; since the argument that if such a change had been 
beneficial, it would have been already brought about by the 
struggle for survival, must be rejected as invalid. Man’s 
prerogative extends to a limited but effective control over 
natural development by forecasting the future and preparing 
the way for the next step. 

Thus progress may be hastened by thought and work; 
by the application of the principles of Eugenics to the re- 
plenishment of the race from its higher rather than its lower 
strains, and by the appropriate education of the faculties 
of either sex: but however hastened it must be gradual and 
relatively slow. It must be slow relatively to man’s growing 
command over technique and the forces of nature ; a command 
which is making ever growing calls for courage and caution, 
for resource and steadfastness, for penetrating insight and for 
breadth of view. And it must be very much too slow to 
keep pace with the rapid inflow of proposals for the prompt 

‘ See Note XI. in the Mathematical Appendix. Considerations of this class 
have little application to the development of mere animals, such as mice; and none 
at all to that of peas and other vegetables. And therefore the marvellous arithmetical 
results which have been established, provisionally at all events, in regard to heredity 
in such cases, have very little bearing on the full problems of inheritance with which 
students of social science are concerned: and some negative utterances on this 
subject by eminent Mendelians seem to lack due reserve. Excellent remarks on 
the subject will be found in Prof. Pigou’s WedUh and Welfare^ Part I, ch. iv. 



LIMITS OF MAN’S POWER TO HASTEN PROGRESS 


249 


reorganization of society on a new basis. In fact our new iv,viii,5 
command over nature, while opening the door to much 
larger schemes for industrial organization than were physi- 
cally possible even a short time ago, places greater responsi- 
bilities on those who would advocate new developments of 
social and industrial structure. For though, institutions may 
be changed rapidly; yet if they are to endure they must be 
appropriate to man: they cannot retain their stability if 
they change very much faster than he does. Thus progress 
itself increases the urgency of the warning that in the 
economic world, Natura non facit salturn^. 

Progress must be slow; but even from the merely material 
point of view it is to be remembered that changes, which add 
only a little to the immediate efficiency of production, may 
be worth having if they make mankind ready and fit for 
an organization, which will be more effective in the pro- 
duction of wealth and more equal in its distribution; and 
that every system, which allows the higher faculties of the 
lower grades of industry to go to waste, is open to grave 
suspicion. 


^ Compare Appendix A, 16 . 



IV, IX, 1. 

The course 
of inquiry 
in this and 
the three 
following 
chapters. 


Practice 

makes 

perfect. 


Physio- 
lo^cal ex- 
planation. 


CHAPTER IX. 

INDUSTRIAL ORGANIZATION, CONTINUED. DIVISION OF 
LABOUR. THE INFLUENCE OF MACHINERY. 

§1. The first condition of an eificient organization of 
industry is that it should keep everyone employed at such 
work as his abilities and training fit him to do well, and 
should equip him with the best machinery and other appli- 
ances for his work. We shall leave on one side for the 
present the distribution of work between those who carry 
out the details of production on the one hand, and those 
who manage its general arrangement and undertake its risk 
on the other; and confine ourselves to the division of labour 
between different classes of operatives, with special reference 
to the influence of machinery. In the following chapter 
we shall consider the reciprocal effects of division of labour 
and localization of industry; in a third chapter we shall 
inquire how far the advantages of division of labour depend 
upon the aggregation of large capitals into the hands of 
single individuals or firms, or, as is commonly said, on pro- 
duction on a large scale; and lastly, we shall examine the 
growing specialization of the work of business management. 

Everyone is familiar with the fact that “practice makes 
perfect,’’ that it enables an operation, which at first seemed 
difficult, to be done after a time with comparatively little 
exertion, and yet much better than before; and physiology 
in some measure explains this fact. For it gives reasons for 
believing that the change is due to the gradual growth of 
new habits of more or less “reflex” or automatic action. 



SPECIALIZATION IN MENTAL WORK 


261 


Perfectly reflex actions, such as that of breathing during iv, n, i, 
sleep, are performed by the responsibility of the local nerve 
centres without any reference to the supreme central autho- 
rity of the thinking power, which is supposed to reside in 
the cerebrum. But all deliberate movements require the 
attention of the chief central authority: it receives infor- 
mation from the nerve centres or local authorities and 
perhaps in some cases direct from the sentient nerves, and 
sends back detailed and complex instructions to the local 
authorities, or in some cases direct to the muscular nerves, 
and so co-ordinates their action as to bring about the required 
results^. 

The physiological basis of purely mental work is not yet Knowledge 
well understood ; but what little we do know of the growth fe^tuai^ * 
of brain structure seems to indicate that practice in any kind 


‘ For instance, the first time a man attempts to skate he must give his whole 
attention to keeping his balance, his cerebrum has to exercise a direct control over 
every movement, and he has not much mental energy left for other things. But 
after a good deal of practice the action becomes semi-automatic, the local nerve 
centres undertake nearly all the work of regulating the muscles, the cerebrum is 
set free, and the man can carry on an independent train of thought; he can even 
alter his course to avoid an obstacle in his path, or to recover his balance sifter it has 
been disturbed by a slight unevenness, without in any way interrupting the course 
of his thoughts. It seems that the exercise of nerve force under the immediate 
direction of the thinking power residing in the cerebrum has gradually built up a 
set of connections, involving probably distinct physical change, between the nerves 
and nerve centres concerned; and these new connections may be regarded as a 
sort of capital of nerve force. There is probably something like an organized 
bureaucracy of the local nerve centres: the medulla, the spinal axis, and the 
larger ganglia generally acting the part of provincial authorities, and being able 
after a time to regulate the district and village authorities without troubling the 
supreme government. Very likely they send up messages as to what is going on: 
but if nothing much out of the way has happened, these are very little attended to. 
When however a new feat has to be accomplished, as for instance learning to 
skate backwards, the whole thinking force will be called into requisition for the 
time; and will now be able by aid of the special skating-organization of the nerves 
and nerve centres, which has been built up in ordinary skating, to do what would 
have been altogether impossible without such aid. 

To take a higher instance: when an artist is painting at his best, his cerebrum 
is fully occupied with his work: his whole mental force is thrown into it, and the 
strain is too great to be kept up for a long time together. In a few hours of happy 
inspiration he may give utterance to thoughts that exert a perceptible influence on 
the character of coming generations. But his power of expression had been earned 
by numberless hours of plodding work in which he had gradually built up an 
intimate connecti(ni between eye and band, sufficient to enable him to make good 
rough sketches of things with which he is tolerably familiar, even while he is 
engaged in an engrossing conversation and is scarcely conscious that he has a 
pencil in his band. 



252 


DIVISION OF LABOUR 


IV,ix,L 


Change of 
activity 
often a 
form of 
relaxation. 


of thinking develops new connections between different parts 
of the brain. Anyhow we know for a fact that practice will 
enable a person to solve quickly, and without any consider- 
able exertion, questions which he could have dealt with but 
very imperfectly a little while before, even by the greatest 
effort. The mind of the merchant, the lawyer, the physician, 
and the man of science, becomes gradually equipped with 
a store of knowledge and a faculty of intuition, which can 
be obtained in no other way than by the continual applica- 
tion of the best efforts of a powerful thinker for many years 
together to one more or less narrow class of questions. Of 
course the mind cannot work hard for many hours a day in 
one direction: and a hard- worked man will sometimes find 
recreation in work that does not belong to his business, but 
would be fatiguing enough to a person who had to do it all 
day long. 

Some social reformers have indeed maintained that those 
who do the most important brain work might do a fair 
share of manual work also, without diminishing their power 
of acquiring knowledge or thinking out hard questions. But 
experience seems to show that the best relief from overstrain 
is in occupations taken up to suit the mood of the moment 
and stopped when the mood is passed, that is, in what popular 
instinct classes as ‘‘relaxation.^^ Any occupation which is so 
far business-like that a person must sometimes force himself 
by an effort of the will to go on with it, draws on his nervous 
force and is not perfect relaxation: and therefore it is not 
economical from the point of view of the community unless 
its value is sufficient to outweigh a considerable injury to his 
main work^. 


' J. S. Mill went so far as to maintain that his occupations at the India 
Office did not interfere with his pursuit of philosophical inquiries. But it seems 
probable that this diversion of his freshest powers lowered the quality of his best 
thought more than he was aware; and though it may have diminished but little 
his remarkable usefulness in his own generation, it probably aUected very much 
his power of doing that kind of work which influences the course of thought in 
future generations. It was by husbanding every atom of his small physical 
strength that Darwin was enabled to do so much work of just that kind: and a 
social reformer who had succeeded in exploiting Darwin’s leisure hours in useful 
work on behalf of the community, would have done a very bad piece of business 
for It 



SPECIALIZATION IN MANUAL WORK 


263 


§ 2. It is a difficult and unsettled question how far iv, ix, 2. 
specialization should be carried in the highest branches of in 
work. In science it seems to be a sound rule that theg*|^®jQf 
area of study should be broad during youth, and should 
gradually be narrowed as years go on. A medical man speciaiiza- 
who has always given his attention exclusively to one class not always 
of diseases, may perhaps give less wise advice even in his^^'i^y. 
special subject than another who, having learnt by wider 
experience to think of those diseases in relation, to general 
health, gradually concentrates his study more and more on 
them, and accumulates a vast store of special experiences 
and subtle instincts. But there is no doubt that greatly 
increased efficiency can be attained through division of 
labour in those occupations in which there is much demand 
for mere manual skill. 

Adam Smith pointed out that a lad who had made nothing But it is 
but nails all his life could make them twice as quickly asa^^re 
a first-rate smith who only took to nail-making occasionally, maimai 
Anyone who has to perform exactly the same set of opera- ^ 
tions day after day on things of exactly the same shape, range of 
gradually learns to move his fingers exactly as they are 
wanted, by almost automatic action and with greater rapidity 
than would be possible if every movement had to wait for 
a deliberate instruction of the will. One familiar instance 
is seen in the tying of threads by children in a cotton-mill. 

Again, in a clothing or a boot factory, a person who sews, 
whether by hand or machinery, just the same seam on a 
piece of leather or cloth of just the same size, hour after 
hour, day after day, is able to do it with far less effort and 
far more quickly than a worker with much greater quickness 
of eye and hand, and of a much higher order of general 
skill, who was accustomed to make the whole of a coat or 
the whole of a boot^. 

^ The best and most expensive clothes are made by highly skilled and highly 
paid tailors, each of whom works right through first one garment and then 
another: while the cheapest and worst clothes are made for starvation wages by 
unskilled women who take the cloth to their own homes and do every part of the 
sewing themselves. But clothes of intermediate qualities are made in workshops 
or factories, in which the division and subdivision of labour are carried as far as 
the size of ^e staff will permit; and this method is rapidly gaining ground at both 
ends at the expense of the rival method. Lord Laudei^ale {In^iry, p. 282) quotes 



254 


DIVISION OF LABOUR 


IV, rx, 2. 
The 

uniformity 
of many 


in the 
wood and 
metal 
trades. 


The 

provinces 
of manual 
labour and 
machinery, 


Again, in the wood and the metal industries, if a man 
has to perform exactly the same operations over and over 
again on the same piece of material, he gets into the habit 
of holding it exactly in the way in which it is wanted, and 
of arranging the tools and other things which he has to 
handle in such positions that he is able to bring them to 
work on one another with the least possible loss of time and 
of force in the movements of his own body. Accustomed to 
find them always in the same position and to take them in 
the same order, his hands work in harmony with one another 
almost automatically: and with increased practice his ex- 
penditure of nervous force diminishes even more rapidly than 
his expenditure of muscular force. 

But when the action has thus been reduced to routine it 
has nearly arrived at the stage at which it can be taken over 
by machinery. The chief difficulty to be overcome is that of 
getting the machinery to hold the material firmly in exactly 
the position in which the machine tool can be brought to 
bear on it in the right way, and without wasting too much 
time in taking grip of it. But this can generally be con- 
trived when it is worth while to spend some labour and 
expense on it; and then the whole operation can often be 
controlled by a worker who, sitting before a machine, takes 
with the left hand a piece of wood or metal from a heap and 
puts it in a socket, while with the right he draws down 
a lever, or in some other way sets the machine tool at work, 
and finally with his left hand throws on to another heap the 
material which has been cut or punched or drilled or planed 
exactly after a given pattern. It is in these industries 
especially that we find the reports of modern trades-unions 
to be full of complaints that unskilled labourers, and even 
their wives and children, are put to do work which used to 
require the skill and judgment of a trained mechanic, but 


Xenophon’s argument that the best work is done when each confines himself to 
one simple department, as when one man makes shoes for men, and another for 
women; or better when one man only sews shoes or garments, another cuts them 
out: the king’s cooking is much better than anybody else’s, because he has one 
cook who only boils, another who only roasts meat; one who only boils fish, 
another who only fries it: there is not one man to make all sorts of bread but a 
Special man for special qualities. 



IN MO0SRN MANtTFACrrtJRfi 


266 


which has been reduced to mere routine by the improvement iv, n, 3. 
of machinery and the ever-increasing minuteness of the sub- 
division of labour. 

§ 3 . We are thus led to a general rule, the action of The 
which is more prominent in some branches of manufacture oUabour 
than others, but which applies to all. It is, that any manu- 
facturing operation that can be reduced to uniformity, 
that exactly the same thing has to be done over and over 
again in the same way, is sure to be taken over sooner or 
later by machinery. There may be delays and difficulties; 
but if the work to be done by it is on a sufficient scale, 
money and- inventive power will be spent without stint on 
the task till it is achieved^. 

Thus the two movements of the improvement of ma- 
chinery and the growing subdivision of labour have gone 
together and are in some measure connected. But the 
connection is not so close as is generally supposed. It is 
the largeness of markets, the increased demand for great 
numbers of things of the same kind, and in some cases of 
things made with great accuracy, that leads to subdivision 
of labour; the chief effect of the improvement of machinery 
is to cheapen and make more accurate the work which would 
anyhow have been subdivided. For instance, ‘‘in organizing Machinery 

(iiBDl&C0A 

the works at Soho, Boulton and Watt found it necessary to pu^ely 
carry division of labour to the furthest practicable point, 


* One great inventor is rumoured to have spent £300,000 on experiments relating 
to textile machinery, and his outlay is said to have been abundantly returned to 
him. Some of his inventions were of such a kind as can be made only by a man 
of genius; and however great the need, they must have waited till the right 
man was found for them. He charged not unreasonably £1000 as royalty for each 
of his combing machines; and a worsted manufacturer, being full of work, found 
it worth his while to buy an additional racichine, and pay this extra charge for it, 
only six months before the expiry of the patent. But such cases are exceptional: 
os a rule, patented machines are not very dear. In some cases the economy of 
having them ail produced at one place by special machinery has been so great that 
the patentee has found it to his advantage to sell them at a price lower than the 
old price of the inferior machines which they displaced: for that old price gave 
him so high a profit, that it was worth his while to lower the price still further 
in order to induce the use of the machines for new purposes and in new markets. 
In almost every trade many things are done by hand, though it is well known that 
they could easily be done 1^ some adaptations of machines that are already in use 
in that or some «tber trade, and which are not made only because there would 
not as yet be enough employment for them to remunerate the trouble and expense 
of making the^. 



256 


DIVISION OF lABOXm 


IV, IX, 4. 


and thus 
diminishes 
some of 
the advan- 
ts^es of 
division of 
labour : but 
increases 
the scope 
for it. 


Machine- 
made 
machinery 
is intro- 
ducing the 
new era 
of Inter- 
changeable 
Parts. 


There were no slide-lathes, planing machines or boring tools, 
such as now render mechanical accuracy of construction 
almost a matter of certainty. Everything depended on the 
individual mechanic’s accuracy of hand and eye; yet me- 
chanics generally were much less skilled then than they 
are now. The way in which Boulton and Watt contrived 
partially to get over the difficulty was to confine their 
workmen to special classes of work, and make them as 
expert in them as possible. By continued practice in 
handling the same tools and fabricating the same articles, 
they thus acquired great individual proficiency^.” Thus 
machinery constantly supplants and renders unnecessary 
that purely manual skill, the attainment of which was, even 
up to Adam Smith’s time, the chief advantage of division 
of labour. But this influence is more than countervailed 
by its tendency to increase the scale of manufactures and 
to make them more complex; and therefore to increase 
the opportunities for division of labour of all kinds, and 
especially in the matter of business management. 

§ 4. The powers of machinery to do work that requires 
too much accuracy to be done by hand are perhaps best 
seen in some branches of the metal industries in which the 
system of Interchangeable Parts is being rapidly developed. 
It is only after long training and with much care and labour 
that the hand can make one piece of metal accurately to 
resemble or to fit into another: and after all the accuracy is 
not perfect. But this is just the work which a well made 
machine can do most easily and most perfectly. For instance, 
if sowing and reaping machines had to be made by hand, 
their first cost would be very high; and when any part of 
them was broken, it could be replaced only at great cost 
by sending the machine back to the manufacturer or by 
bringing a highly skilled mechanic to the machine. But as 
it is, the manufacturer keeps in store many facsimiles of the 
broken part, which were made by the same machinery, and 
are therefore interchangeable with it. A farmer in the North- 
West of America, perhaps a hundred miles away from any 
good mechanic’s shop, can yet use complicated machinery 
' Smiles’ BovJUUm and Watt, pp. 170, 1. 



ILLUSTRATION FROM THE WATCH-MAKING TRADE 


257 


with confidence; since he knows that by telegraphing the iv,ix, 4. 
number of the machine and the number of any part of it 
which he has broken, he will get by the next train a new 
piece which he can himself fit into its place. The import- 
ance of this principle of interchangeable parts has been 
but recently grasped; there are however many signs that 
it will do more than any other to extend the use of machine- 
made machinery to every branch of production, including 
even domestic and agricultural work^. 

The influences which machinery exerts over the character iiiustra- 
of modern industry are well illustrated in the manufacture tLThist^y 
of watches. Some years ago the chief seat of this business 
was in French Switzerland; where the subdivision of labour 
was carried far, though a great part of the work was done 
by a more or less scattered population. There were about 
fifty distinct branches of trade each of which did one small 
part of the work. In almost all of them a highly specialized 
manual skill was required, but very little judgment; the 
earnings were generally low, because the trade had been 
established too long for those in it to have anything like 
a monopoly, and there was no difiiculty in bringing up to 
it any child with ordinary intelligence. But this industry 
is now yielding ground to the American system of making 
watches by machinery, which requires very little specialized 
manual skill. In fact the machinery is becoming every 
year more and more automatic, and is getting to require 
less and less assistance from the human hand. But the Complex 
more delicate the machine’s power, the greater is the increases ^ 
judgment and carefulness which is called for from those 
who see after it. Take for instance a beautiful machine 

general m- 

which feeds itself with steel wire at one end, and delivers telligence; 
at the other tiny screws of exquisite form; it displaces a 
great many operatives who had indeed acquired a very high 
and specialized manual skill, but who lived sedentary lives, 
straining their eyesight through microscopes, and finding in 


^ The system owes its origin in great measure to Sir Joseph Whitworth’s 
standard gauges; but it has been worked out with mpiSt enterprise and thorough- 
ness in America. Standardization is most helpful in regard to things which are 
to be built up with others into complex machines, buildings, bridges, etc. 


M. 


9 



268 


IV, «, 4 . 


and in 
some cases 
weakens 
the 

barriers 
that divide 
different 
trades. 


DIVISION OF LABOUR 

their work very little scope for any faculty except a mere 
command over the use of their fingers. But the machine is 
intricate and costly, and the person who minds it must have 
an intelligence, and an energetic sense of responsibility, which 
go a long way towards making a fine character; and which, 
though more common than they were, are yet sufficiently 
rare to be able to earn a very high rate of pay. No doubt 
this is an extreme case; and the greater part of the work 
done in a watch factory is much simpler. But much of it 
requires higher faculties than the old system did, and 
those engaged in it earn on the average higher wages; at 
the same time it has already brought the price of a trust- 
worthy watch within the range of the poorest classes of 
the community, and it is showing signs of being able soon 
to accomplish the very highest class of work^. 

Those who finish and put together the different parts 
of a watch must always have highly specialized skill: but 
most of the machines which are in use in a watch factory 
are not different in general character from those which are 
used in any other of the lighter metal trades: in fact many 
of them are mere modifications of the turning lathes and 
of the slotting, punching, drilling, planing, shaping, milling 
machines and a few others, which are familiar to all engineer- 
ing trades. This is a good illustration of the fact that while 
there is a constantly increasing subdivision of labour, many 
of the lines of division between trades which are nominally 
distinct are becoming narrower and less difficult to be 
passed. In old times it would have been very small comfort 
to watch-makers, who happened to be suffering from a 
diminished demand for their wares, to be told that the 
gun-making trade was in want of extra hands; but most 
of the operatives in a watch factory would find machines* 
very similar to those with which they were familiar, if they 


‘ The perfection which the machinery has already attained is shown by the 
fact that at the Inventions Exhibition held in London in 1885, the representative 
of an American watch factory took to pieces fifty watches before some English 
representatives of the older system of manufacture, and after throwing the 
different parts into different heaps, asked them to select for him one piece from 
each heap in succession; he then set these pieces up in one of the watch-cases 
and handed them back a watch in perfect order. 



ILLUSTRATIONS FROM WATCH-MAKING AND PRINTINO 


269 


strayed into a gun-making factory or sewing-machine factory, iv, rx, 6. 
or a factory for making textile machinery. A watch factory 
with those who worked in it could be converted without any 
overwhelming loss into a sewing-machine factory: almost 
the only condition would be that in the new factory no one 
should be put to work which required a higher order of 
general intelligence, than that to which he was already 
accustomed. 

§ 5. The printing trade affords another instance of the iiiiwtra- 
way in which an improvement of machinery and an increase thTprlnt- 
in the volume of production causes an elaborate subdivision 
of labour. Everyone is familiar with the pioneer newspaper 
editor of newly settled districts of America, who sets up 
the type of his articles as he composes them; and with the 
aid of a boy prints off his sheets and distributes them to his 
scattered neighbours. When however the mystery of print- 
ing was new, the printer had to do all this for himself, and 
in addition to make all his own appliances^. These are 
now provided for him by separate “subsidiary’’ trades, from 
whom even the printer in the backwoods can obtain every- 
thing that he wants to use. But in spite of the assistance 
which it thus gets from outside, a large printing establish- 
ment has to find room for many different classes of workers 
within its walls. To say nothing of those who organize and 
superintend the business, of those who do its office work and 
keep its stores, of the skilled “readers” who correct any 
errors that may have crept into the “proofs,” of its engineers 
and repairers of machinery, of those who cast, and who correct 
and prepare its stereotype plates; of the warehousemen and 
the boys and girls who assist them, and several other minor 
classes; there are the two great groups of the compositors 
who set up the type, and the machinists and pressmen who 
print impressions from them. Each of these two groups is instance of 
divided into many smaller groups, especially in the large pUcSlon in 

' “The type-founder was probably the first to sncede from the concern; then 
printers delegated to others the making of presses; afterwards the ink and the 
rollers found separate and distinct manufacturers; and there arose a class of 
persons who, though belonging to other trades, made printing appliances a 
speciality, such as printers’ smiths, printers’ joiners and printers’ engineers” (Mr 
Southward in the Article on Typography in the Encyclopmdia Britannica), 



DIVISION OF LABOUR 


260 


IV, IX, 6. 

modern 
industry 
of thin 
lines of 
division, 


which can 
be passed 
without 
Sreat 
difficulty. 


centres of the printing trade. In London, for instance, a 
minder who was accustomed to one class of machine, or 
a compositor who was accustomed to one class of work, if 
thrown out of employment would not willingly abandon the 
advantage of his specialized skill, and falling back on his 
general knowledge of the trade seek work at another kind of 
machine or in another class of workL These barriers be- 
tween minute subdivisions of a trade count for a great deal 
in many descriptions of the modern tendency towards 
specialization of industry; and to some extent rightly, 
because though many of them are so slight that a man 
thrown out of work in one subdivision could pass into one of 
its neighbours without any great loss of efiSciency, yet he does 
not do so until he has tried for a while to get employment in 
his old lines; and therefore the barriers are as effective as 
stronger ones would be so far as the minor fluctuations of 
trade from week to week are concerned. But they are of an 
altogether different kind from the deep and broad partitions 
which divided one group of mediaeval handicraftsmen from 
another, and which caused the lifelong suffering of the 
handloom- weavers when their trade had left them^. 


‘ For instance, Mr Southward tells us “a minder may understand only book 
machines or only news machines; he may know all about machines that print 
from flat surfaces or those that print from cylinders; “or of cylinders he may 
know only one kind. Entirely novel machines create a new class of artisans. 
There are men perfectly competent to manage a Walter press who are ignorant 
how to work two-colour or fine book-work machines. In the compositor’s depart- 
ment division of labour is carried out to a still minuter degree. An old-fashioned 
printer would set up indifferently a placard, a title-page, or a book. At the 
present day we have jobbing hands, book hands, and news hands, the word 
‘hand’ suggesting the factory-like nature of the business. There are jobbing 
hands who confine themselves to posters. Book hands comprise those who set 
up the titles and those who set up the body of the work. Of these latter again, 
while one man composes, another, the ‘maker-up,’ arranges the pages.” 

* Let us follow still further the progress of machinery in supplanting manual 
labour in some directions and opening out new fields for its employment in others. 
Let us watch the process by which large editions of a great newspaper are set 
up and printed off in a few hours. To begin with, a good part of the type-setting 
is itself often done by a machine; but in any case the types are in the first instance 
on a plane surface, from which it is impossible to print very rapidly. The next 
step therefore is to make a papier-mach6 cast of them, which is bent on to a 
cylinder, and is then used as the mould from which a new metal plate is cast that 
fits the cylinders of the printing machine. Fixed on these it rotates alternately 
against the inking cylinders and the paper. The paper is arranged in a huge roll 
at the bottom of the machine and unrolls itself automatically, first against the 
damping cylinders and then against the printing cylinders, the first of which 



THE INFLUENCES OF MACHINERY ON THE ARTISAN 


261 


In the printing trades, as in the watch trade, we see iv, n, 6 
mechanical and scientific appliances attaining results thatinst^e 
would be impossible without them; at the same time that?Jg‘g^ 
they persistently take over work that used to require manual dem^d for 
skill and dexterity, but not much judgment; while they leave of a high 
for man’s hand all those parts which do require the use of caused by 
judgment, and open up all sorts of new occupations in which 
there is a great demand for it. Every improvement and 
cheapening of the printer’s appliances increases the demand 
for the judgment and discretion and literary knowledge of 
the reader, for the skill and taste of those who know how to 
set up a good title-page, or how to make ready a sheet on 
which an engraving is to be printed, so that light and shade 
will be distributed properly. It increases the demand for 
the gifted and highly-trained artists who draw or engrave on 
wood and stone and metal, and for those who know how to 
give an accurate report in ten lines of the substance of a speech 
that occupied ten minutes — an intellectual feat the difficulty 
of which we underrate, because it is so frequently performed. 

And again, it tends to increase the work of photographers 
and electrotypers, and stereotypers, of the makers of printer’s 
machinery, and many others who get a higher training and 
a higher income from their work than did those layers on 
and takers off, and those folders of newspapers who have 
found their work taken over by iron fingers and iron arms. 

§ 6 . We may now pass to consider the effects which Machinery 

^ F0I10V6S 

machinery has in relieving that excessive muscular strain the strain 
which a few generations ago was the common lot of nioremufiSS^ 
than half the working men even in such a country as England. 

The most marvellous instances of the power of machinery are 


prints it on one side, and the second on the other: thence to the cutting cylinders, 
which cut it into equal lengths, and thence to the folding apparatus, which folds 
it ready for sale. 

More recently the casting of the type has been brought under the new methods. 
The compositor plays on a keyboard like that of the type- writer, and the matrix 
of a corresponding letter goes into line: then after spacing out, molten lead is 
poured on the line of matrices, and a solid line of type is ready. And in a further 
development each letter is cast separately from its matrix; the machine reckons 
up the space taken by the letters, stops when there are enough for a line, divides 
out the free space equaUy into the requisite number of small spaces between the 
words; and finally casts the line. It is claimed that one compositor can work 
several such machines simultaneously in distant towns by electric currents. 



262 ' DIVISION OF LABOUR 

IV, IX, 6. seen in large iron-works, and especially in those for making 
armour plates, where the force to be exerted is so great that 
man’s muscles count for nothing, and where every move- 
ment, whether horizontal or vertical, has to be effected by 
hydraulic or steam force, and man stands by ready to govern 
the machinery and clear away ashes or perform some such 
secondary task. 

Machinery of this class has increased our command over 
nature, but it has not directly altered the character of man’s 
work very much; for that which it does he could not have 
done without it. But in other trades machinery has 
lightened man’s labours. The house carpenters, for instance, 
make things of the same kind as those used by our fore- 
fathers, with much less toil for themselves. They now give 
themselves chiefly to those parts of the task which are 
most pleasant and most interesting; while in every country 
town and almost every village there are found steam mills 
for sawing, planing and moulding, which relieve them of 
that grievous fatigue which not very long ago used to make 
them prematurely old^. 

Machinery New machinery, when just invented, generally requires 
sooner or a great deal of care and attention. But the work of its 
m^oto- attendant is always being sifted; that which is uniform and 
in manu^^ monotonous is gradually taken over by the machine, which 
facture. thus becomes steadily more and more automatic and self- 
acting; till at last there is nothing for the hand to do, but 
to supply the material at certain intervals and to take away 
the work when finished. There still remains the responsi- 
bility for seeing that the machinery is in good order and 
working smoothly; but even this task is often made light 
by the introduction of an automatic movement, which brings 
the machine to a stop the instant anything goes wrong. 

* The jack-plane, used for making smooth large boards for floors and other 
purposes, used to cause heart disease, making carpenters as a rule old men by the 
time they were forty. Adam Smith tells us that ** workmen, when they are 
liberally paid, are very apt to overwork themselves and to ruin their health and 
constitution in a few years. A carpenter in London, and in some other places, is 
not supposed to last in his utmost vigour above eight years....AImost every class 

of artificers is subject to some particular infirmity occasioned by excessive 
application to their peculiar species of work.’* WedUh oj Nations^ Book l 
chapter vn. 



MONOTONY OF WORK AND MONOTONY OF LIFE 


268 


Nothing could be more narrow or monotonous than the iv, ix,6. 
occupation of a weaver of plain stuffs in the old time. But niustr^ 
now one woman will manage four or more looms, each of 
which does many times as much work in the course of the industries, 
day as the old hand-loom did; and her work is much less 
monotonous and calls for much more judgment than his did. 

So that for every hundred yards of cloth that are woven, the 
purely monotonous work done by human beings is probably 
not a twentieth part of what it was^. 

Facts of this kind are to be found in the recent history it thus 
of many trades : and they are of great importance when we monot^y 
are considering the way in which the modern organization 
of industry is tending to narrow the scope of each person’s 

^ ^ monotony 

work, and thereby to render it monotonous. For those trades of life, 
in which the work is most subdivided are those in which 
the chief muscular strain is most certain to be taken off by 
machinery; and thus the chief evil of monotonous work is 
much diminished. As Roscher says, it is monotony of life 
much more than monotony of work that is to be dreaded: 
monotony of work is an evil of the first order only when it 
involves monotony of life. Now when a person’s employ- 
ment requires much physical exertion, he is fit for nothing 
after his work; and unless his mental faculties are called 
forth in his work, they have little chance of being developed 
at all. But the nervous force is not very much exhausted in 
the ordinary work of a factory, at all events where there is 
not excessive noise, and where the hours of labour are not 
too long. The social surroundings of factory life stimulate 
mental activity in and out of working hours; and many of 
those factory workers, whose occupations are seemingly the 
most monotonous, have considerable intelligence and mental 
resource^. 

^ The efficiency of labour in weaving has been increased twelve-fold and that 
in spinning six-fold during the last seventy years. In the preceding seventy 
years the improvements in spinning had already increased the efficiency of labour 
two-hundrod-fold (see Ellison’s Cotton Trade of Great BrUain^ ch. iv. and v.). 

* Perhaps the textile industries afford the best instance of work that used to 
be done by hand and is now done by machinery. They are especially prominent 
in England, where they give employment to nearly half a million males and more 
than half a million females, or more than one in ten of those persons who are 
earning independent incomes. The strain that is taken off human muscles in 



264 


DIVISION OP LABOUR 


IV, IX, 7. 


The 

economic 
use of 
specialized 
skill and 
machinery 
requires 
that they 
should be 
fully 
occupied. 


It is true that the American agriculturist is an able man^ 
and that his children rise rapidly in the world. But partly 
because land is plentiful, and he generally owns the farm 
that he cultivates, he has better social conditions than the 
English; he has always had to think for himself, and has 
long had to use and to repair complex machines. The 
English agricultural labourer has had many great disadvan- 
tages to contend with. Till recently he had little education ; 
and he was in a great measure under a semi-feudal rule, 
which was not without its advantages, but which repressed 
enterprise and even in some degree self-respect. These 
narrowing causes are removed. He is now fairly well edu- 
cated in youth. He learns to handle various machinery; he 
is less dependent on the good-will of any particular squire or 
group of farmers; and, since his work is more various, and 
educates intelligence more than the lowest grades of town work 
do, he is tending to rise both absolutely and relatively. 

§ 7. We must now proceed to consider what are the 
conditions under which the economies in production arising 
from division of. labour can best be secured. It is obvious 
that the efficiency of specialized machinery or specialized 
skill is but one condition of its economic use; the other 
is that sufficient work should be found to keep it well 
employed. As Babbage pointed out, in a large factory 

dealing even with those soft materials is shown by the fact that for every one of 
these million operatives there is used about one horse-power of steam, that is, 
about ten times as much as they would themselves exert if they were all strong 
men; and the history of these industries will serve to remind us that many of 
those who perform the more monotonous parts of manufacturing work are as a 
rule not skilled .workers who have come down to it from a higher class of work, 
but unskilled workers who have risen to it. A great number of those who work 
in the Lancashire cotton-mills have come there from poverty-stricken districts of 
Ireland, while others are the descendants of paupers and people of weak physique, 
who were sent there in large numbers early in the last century from the most miser- 
able conditions of life in the poorest agricultural districts, where the labourers 
were fed and housed almost worse than the animals whom they tended. Again, 
when regret is expressed that the cotton factory hands of New England have not 
the high standard of culture which prevailed among them a century ago, we must 
remember that the descendants of those factory workers have moved up to higher 
and more responsible posts, and include many of the ablest and wealthiest of the 
citizens of America. Those who have taken their places are in the process of 
being raised; they are chiefly French Canadians and Irish, who though they may 
learn in their new homes some of the vices of civilization, are yet much better off 
and have on the whole better opportunities of developing the higher faculties of 
themselves and their children than they had in their old homes 



MACHINERY A MEANS, MAN ALSO AN END OF WORK 


266 


‘Hhe master manufacturer by dividing the work to be iv, ix, 7. 
executed into different processes, each requiring different 
degrees of skill or force, can purchase exactly that precise 
quantity of both which is necessary for each process ; whereas 
if the whole work were executed by one workman that person 
must possess sufficient skill to perform the most difficult and 
sufficient strength to execute the most laborious of the 
operations into which the work is divided.’’ The economy 
of production requires not only that each person should be 
employed constantly in a narrow range of work, but also that, 
when it is necessary for him to undertake different tasks, 
each of these tasks should be such as to call forth as much as 
possible of his skill and ability. Just in the* same way the 
economy of machinery requires that a powerful turning- 
lathe when specially arranged for one class of work should be 
kept employed as long as possible on that work; and if 
there is occasion to employ it on other work, that should be 
such as to be worthy of the lathe, and not such as could have 
been done equally well by a much smaller machine. 

Here then, so far as the economy of production goes, men But tne 
and machines stand on much the same footing: but while economic 
machinery is a mere implement of production, man’s welfare is man^^an 
also its ultimate aim. We have already been occupied pfoSucUon 
the question whether the human race as a whole gains by is wasteful 
carrying to an extreme that specialization of function which himself 
causes all the most difficult work to be done by a few people : 
but we have now to consider it more nearly with special 
reference to the work of business management. The main 
drift of the next three chapters is to inquire what are the 
causes which make different forms of business management 
the fittest to profit by their environment, and the most likely 
to prevail over others; but it is well that meanwhile we 
should have in our minds the question, how far they are 
severally fitted to benefit their environment. 

Many of those economies in the use of specialized skill 
and machinery which are commonly regarded as within the 
reach of very large establishments, do not depend on the size 
of individual factories. Some depend on the aggregate 
volume of production of the kind in the neighbourhood; 



266 


DIVISION OP LABOUR 


IV, a, 7. 


External 

and 

internal 

economies. 


while others again, especially those connected with the 
growth of knowledge and the progress of the arts, depend 
chiefly on the aggregate volume of production in the whole 
civilized world. And here we may introduce two technical 
terms. 

We may divide the economies arising from an increase in 
the scale of production of any kind of goods, into two classes 
— flrstly, those dependent on the general development of the 
industry; and, secondly, those dependent on the resources of 
the individual houses of business engaged in it, on their 
organization and the efi&ciency of their management. We 
may call the former external economies, and the latter 
internal econormes. In the present chapter we have been 
chiefly discussing internal economies; but we now proceed 
to examine those very important external economies which 
can often be secured by the concentration of many small 
businesses of a similar character in particular localities: or, 
as is commonly said, by the localization of industry. 



CHAPTER X. 

INDUSTRIAL ORGANIZATION, CONTINUED. THE CON- 
CENTRATION OF SPECIALIZED INDUSTRIES IN PAR- 
TICULAR LOCALITIES. 

§ 1. In an early stage of civilization every place had to iv, x, i. 
depend on its own resources for most of the heavy wares jEven 
which it consumed; unless indeed it happened to have special stores of 
facilities for water carriage. But wants and customs changed 
slowly: and this made it easy for producers to meet the production 
wants even of consumers with whom they had little com- light and 
munication; and it enabled comparatively poor people to wares 
buy a few expensive goods from a distance, in the security {jj^aiSed. 
that they would add to the pleasure of festivals and holidays 
during a life-time, or perhaps even during two or three life- 
times. Consequently the lighter and more expensive articles 
of dress and personal adornment, together with spices and 
some kinds of metal implements used by all classes, and many 
other things for the special use of the rich, often came from 
astonishing distances. Some of these were produced only 
in a few places, or even only in one place; and they were 
diffused all over Europe partly by the agency of fairs^ and 
professional pedlers, and partly by the producers themselves, 
who would vary their work by travelling on foot for many 
thousand miles to sell their goods and see the world. These 
sturdy travellers took on themselves the risks of their little 

^ Thus in the records of the Stourbridge Fair held near Cambridge we find an 
endless variety of light and precious goods from the older seats of civilization in 
the East and on the Mediterranean; some having been brought in Italian ships, 
and others having travelled by land as far as the shores of the North Sea. 



268 


LOCALIZED INDUSTRIES 


IV, X, 2. businesses; they enabled the production of certain classes of 
goods to be kept on the right track for satisfying the needs 
of purchasers far away; and they created new wants among 
consumers, by showing them at fairs or at their own houses 
new goods from distant lands. An industry concentrated 
in certain localities is commonly, though perhaps not quite 
accurately, described as a localized industry^. 

This elementary localization of industry gradually pre- 
pared the way for many of the modern developments of 
division of labour in the mechanical arts and in the task of 
business management. Even now we find industries of a 
primitive fashion localized in retired villages of central 
Europe, and sending their simple wares even to the busiest 
haunts of modern industry. In Russia the expansion of a 
family group into a village has often been the cause of a 
localized industry; and there are an immense number of 
villages each of which carries on only one branch of produc- 
tion, or even only a part of one^. 

Tbft § 2. Many various causes have led to the localization of 

origins of industries; but the chief causes have been physical condi- 
indkwtries; tions; such as the character of the climate and the soil, the 
oonSt^ons- existence of mines and quarries in the neighbourhood, or 
within easy access by land or water. Thus metallic indus- 
tries have generally been either near mines or in places 
where fuel was cheap. The iron industries in England first 
sought those districts in which charcoal was plentiful, and 


* Not. very long ago travellers in western Tyrol could find a strange and 
characteristic relic of this habit in a village called Imst. The villagers had 
somehow acquired a special art in breeding canaries: and their young men 
started for a tour ‘to distant parts of Europe each with about fifty small cages 
hung from a pole over his shoulder, and walked on till they had sold all. 

* There are for instance over 500 villages devoted to various branches of 
woodwork; one village makes nothing but spokes for the wheels of vehicles, 
another nothing but the bodies and so on; and indications of a like state of things 
are found in tlie histories of oriental civilizations and in the chronicles of mediaeval 
Europe. Thus for instance we read (Rogers’ Sijc Centuries of Work and Wages^ 
ch. IV.) of a lawyer’s handy book written about 1250, which makes note of scarlet 
at Lincoln; blanket at Bligh; bumet at Beverley; ruaset at Colchester; linen 
fabrics at Shaftesbury, Lewes, and Aylsham; cord at Warwick and Bridport; 
knives at Marstead; needles at Wilton; razors at Leicester; soap at Coventry; 
horse girths at Doncaster; skins and furs at Chester and Shrewsbury and so on. 

The localization of trades in England at the beginning of the eighteenth 
century is well described by Defoe, Plan of English Commerce^ 85-7; English 
Tradesman^ n. 282-3. 



THEIR VARIOUS ORIGINS 


269 


afterwards they went to the neighbourhood of collieries^. IV, x, 2. 
Staffordshire makes many kinds of pottery, all the materials 
of which are imported from a long distance; but she has 
cheap coal and excellent clay for making the heavy “ seggars 
or boxes in which the pottery is placed while being fired. 

Straw plaiting has its chief home in Bedfordshire, where 
straw has just the right proportion of silex to give strength 
without brittleness; and Buckinghamshire beeches have 
afforded the material for the Wycombe chairmaking. The 
Sheffield cutlery trade is due chiefly to the excellent grit of 
which its grindstones are made. 

Another chief cause has been the patronage of a court, tb® 

The rich fold there assembled make a demand for goods of ofcourtf •* 
specially high quality, and this attracts skilled workmen 
from a distance, and educates those on the spot. When an 
Eastern potentate changed his residence — and, partly for 
sanitary reasons, this was constantly done — the deserted 
town was apt to take refuge in the development of a 
specialized industry, which had owed its origin to the pre- 
sence of the court. But very often the rulers deliberately the 
invited artisans from a distance and settled them in a group invitation 
together. Thus the mechanical faculty of Lancashire is said 
to be due to the influence of Norman smiths who were 
settled at Warrington by Hugo de Lupus in William the 
Conqueror’s time. And the greater part of England’s manu- 
facturing industry before the era of cotton and steam had 
its course directed by settlements of Flemish and other 
artisans; many of which were made under the immediate 
direction of Plantagenet and Tudor kings. These immigrants 
taught us how to weave woollen and worsted stuffs, though 
for a long time we sent our cloths to the Netherlands to be 
fulled and dyed. They taught us how to cure herrings, how 
to manufacture silk, how to make lace, glass, and paper, and 
to provide for many other of our wants 

^ The later wanderings of the iron industry from Wales, Staffordshire and 
Shropshire to Scotland and the North of England are well shown in the tables 
submitted by Sir Lowthian Bell to the recent Commission on the Depression of 
Trade and Industry. See their Second Report, Part i. p. 320. 

* Fuller says that Flemings started manufactures of cloths and fiistians in 
Norwich, of baizes in Sudbury, of serges in Colchester and Taunton, of cloths in 



270 


LOCALIZED INDUSTRIES 


IV, 2 . 

The 

industrial 
develop- 
ment of 
nations 
waits upon 
opportuni- 
ties and 
upon 
character. 


But how did these immigrants learn their skill? Their 
ancestors had no doubt profited by the traditional arts of 
earlier civilizations on the shores of the Mediterranean and 
in the far East: for nearly all important knowledge has long 
deep roots stretching downwards to distant times; and so 
widely spread have been these roots, so ready to send up 
shoots of vigorous life, that there is perhaps no part of the old 
world in which there might not long ago have flourished many 
beautiful and highly skilled industries, if their growth had 
been favoured by the character of the people, and by their 
social and political institutions. This accident or that may 
have determined whether any particular industry flourished 
in any one town; the industrial character of a whole country 
even may have been largely influenced by the richness of 
her soil and her mines, and her facilities for commerce. Such 
natural advantages may themselves have stimulated free in- 
dustry and enterprise: but it is the existence of these last, 
by whatever means they may have been promoted, which 
has been the supreme condition for the growth of noble 
forms of the arts of life. In sketching the history of free 
industry and enterprise we have already incidentally traced 
the outlines of the causes which have localized the industrial 
leadership of the world now in this country and now in that. 
We have seen how physical nature acts on man’s energies, 
how he is stimulated by an invigorating climate, and how 
he is encouraged to bold ventures by the opening out of 
rich fields for his work: but we have also seen how the use 
he makes of these advantages depends on his ideals of life, 
and how inextricably therefore the religious, political and 
economic threads of the world’s history are interwoven; while 
together they have been bent this way or that by great 
political events and the influence of the strong personalities 
of individuals. 

The causes which determine the economic progress of 
nations belong to the study of international trade and there- 
fore lie outside of our present view. But for the present we 

Kent; Gloucestershire, Worcestershire, Westmorland, Yorkshire, Hants, Berks 
and Sussex, of kerseys in Devonshire and of Levant cottons in Lancashire. 
Smiles’ Huguenots in England and Ireland, p. 109. See also Lecky’s History 
of England tn the eighteenth century, cb. n. 



THEIR ADVANTAGES 


271 


must turn aside from these broader movements of the locali- iv, x, 8. 
zation of industry, and follow the fortunes of groups of skilled 
workers who are gathered within the narrow boundaries of 
a manufacturing town or a thickly peopled industrial district. 

§ 3. When an industry has thus chosen a locality for The 
itself, it is likely to stay there long: so great are the ad-onoca^d* 
vantages which people following the same skilled trade get 
from near neighbourhood to one another. The mysteries of skill; 
the trade become no mysteries; but are as it were in the 
air, and children learn many of them unconsciously. Good 
work is rightly appreciated, inventions and improvements in 
machinery, in processes and the general organization of the 
business have their merits promptly discussed: if one man 
starts a new idea, it is taken up by others and combined 
with suggestions of their own; and thus it becomes the 
source of further new ideas. And presently subsidiary trades the 
grow up in the neighbourhood, supplying it with implements fubridda^y 
and materials, organizing its traffic, and in many ways^'^^®®*' 
conducing to the economy of its material. 

Again, the economic use of expensive machinery can the us® 
sometimes be attained in a very high degree in a district in speciaUzed 
which there is a large aggregate production of the 
kind, even though no individual capital employed in the 
trade be very large. For subsidiary industries devoting them- 
selves each to one small branch of the process of production, 
and working it for a great many of their neighbours, are 
able to keep in constant use machinery of the most highly 
specialized character, and to make it pay its expenses, though 
its original cost may have been high, and its rate of depre- 
ciation very rapid. 

Again, in all but the earliest stages of economic develop- a local 
ment a localized industry gains a great advantage from the^edai^^^^ 
fact that it offers a constant market for skill. Employers 
are apt to resort to any place where they are likely to find 
a good choice of workers with the special skill which they 
require; while men seeking employment naturally go to 
places where there are many employers who need such skill 
as theirs and where therefore it is likely to find a go6d market. 

The owner of an isolated factory, even if he has access to 



272 


IV, I, 8. 


Sometimes 
however a 
localized 
industry 
makes too 
extensive 
demands 
for one 
kind of 
labour. 


LOCAI.rZED INDUSTRIES 

a plentiful supply of general labour, is often put to great 
shifts for want of some special skilled labour; and a skilled 
workman, when thrown out of employment in it, has no easy 
refuge. Social forces here co-operate with economic: there 
are often strong friendships between employers and employed : 
but neither side likes to feel that in case of any disagreeable 
incident happening between them, they must go on rubbing 
against one another: both sides like to be able easily to break 
off old associations should they become irksome. These diffi- 
culties are still a great obstacle to the success of any business 
in which special skill is needed, but which is not in the neigh- 
bourhood of others like it : they are however being diminished 
by the railway, the printing-press and the telegraph. 

On the other hand a localized industry has some disad- 
vantages as a market for labour if the work done in it is 
chiefly of one kind, such for instance as can be done only by 
strong men. In those iron districts in which there are no 
textile or other factories to give employment to women and 
children, wages are high and the cost of labour dear to the 
employer, while the average money earnings of each family 
are low. But the remedy for this evil is obvious, and is 
found in the growth in the same neighbourhood of industries 
of a supplementary character. Thus textile industries are 
constantly found congregated in the neighbourhood of mining 
and engineering industries, in some cases having been attracted 
by almost imperceptible steps; in others, as for instance at 
Barrow, having been started deliberately on a large scale 
in order to give variety of employment in a place where pre- 
viously there had been but little demand for the work of 
women and children. 

The advantages of variety of employment are combined 
with those of localized industries in some of our manufactur- 
ing towns, and this is a chief cause of their continued growth. 
But on the other hand the value which the central sites of a 
large town have for trading purposes, enables them to com- 
mand much higher ground-rents than the situations are 
worth for factories, even when account is taken of this com- 
bination of advantages: and there is a similar competition 
for dwelling space between the employees of the trading 



CHANGES IN VOLUME OF BRITISH INDUSTRIES 


273 


houses and the factory workers. The result is that factories iv, x, 4 . 
now congregate in the outskirts of large towns and in manu- 
facturing districts in their neighbourhood rather than in the 
towns themselves^. 

A district which is dependent chiefly on one industry is Different 
liable to extreme depression, in case of a falling-off in the jn^th^^slSie 
demand for its produce, or of a failure in the supply of the 
raw material which it uses. This evil again is in a great gate each 
measure avoided by those large towns or large industrial pressions. 
districts in which several distinct industries are strongly 
developed. If one of them fails for a time, the others are 
likely to support it indirectly; and they enable local shop- 
keepers to continue their assistance to workpeople in it. 

So far we have discussed localization from the point Locaiiza- 
of view of the economy of production. But there is also the sh^ps.^ 
convenience of the customer to be considered. He will go 
to the nearest shop for a trifling purchase; but for an 
important purchase he will take the trouble of visiting any 
part of the town where he knows that there are specially 
good shops for his purpose. Consequently shops which deal 
in expensive and choice objects tend to congregate together; 
and those which supply ordinary domestic needs do not^. 

§ 4. Every cheapening of the means of communication, The in- ^ 
every new facility for the free interchange of ideas between improved 
distant places alters the action of the forces which tend to communV 
localize industries. Speaking generally we must say that a 
lowering of tariffs, or of freights for the transport of goods, 
tends to make each locality buy more largely from a dis- Lion of 
tance what it requires; and thus tends to concentrate parti- ^ 
cular industries in special localities: but on the other hand 
everything that increases people’s readiness to migrate from 
one place to another tends to bring skilled artisans to ply 

^ The movement has been specially conspicuous in the case of the textile 
manufacturers. Manchester, Leeds and Lyons are still chief centres of the trade 
in cotton, woollen and silk stuffs, but they do not now themselves produce any 
great part of the goods to which they owe their chief fame. On the other hand 
London and Paris retain their positions as the two largest manufacturing towns 
of the world, Philadelphia coming third. The mutual influences of the localization 
of industry, the growth of towns and habits of town life, and the development of 
machinery are well discussed in Hobson’s 'Evolution of Capitalism. 

• Comp. Hobson, 1. c. p. 114. 



274 LOCALIZED INDUSTRIES 

IV, 1 , 4. their crafts near to the consumers who will purchase their 
wares. These two opposing tendencies are well illustrated 
by the recent history of the English people. 

Illustration On the one hand the steady cheapening of freights, the 
recent^* opening of railways from the agricultural districts of America 
En^In<L^ and India to the sea-board, and the adoption by England of 
a free-trade policy, have led to a great increase in her impor- 
tation of raw produce. But on the other hand the growing 
cheapness, rapidity and comfort of foreign travel, are inducing 
her trained business men and her skilled artisans to pioneer 
the way for new industries in other lands, and to help them 
to manufacture for themselves goods which they have been 
wont to buy from England. English mechanics have taught 
people in almost every part of the world how to use English 
machinery, and even how to make similar machinery; and 
English miners have opened out mines of ore which have di- 
minished the foreign demand for many of England’s products. 

One of the most striking movements towards the speciali- 
zation of a country’s industries, which history records, is the 
rapid increase of the non-agricultural population of England 
in recent times. The exact nature of this change is however 
liable to be misunderstood; and its interest is so great, both 
for its own sake, and on account of the illustrations it affords 
of the general principles which we have been discussing in 
the preceding chapter and in this, that we may with advan- 
tage pause here to consider it a little. 

Th® In the first place, the real diminution of England’s agri- 

of heragri- Cultural industries is not so great as at first sight appears. 
pop^Tuon Middle Ages three-fourths of the people 

isi^ were reckoned as agriculturists; that only one in nine was 

than at t i i t i 

first sight returned to the last census as engaged in agriculture, and 
appears. perhaps not more than one in twelve will be so returned 

at the next census. But it must be remembered that the 
so-called agricultural population of the Middle Ages were not 
exclusively occupied with agriculture; they did for them- 
selves a great part of the work that is now done by brewers 
and bakers, by spinners and weavers, by bricklayers and car- 
penters, by dressmakers and tailors and by many other trades. 
These self-sufficing habits died slowly; but most of them had 
nearly disappeared by the beginning of the last century; and 



CHANGES IN VOLUME OF ENGLISH INPUSTRIES 


275 


it is probable that the labour spent on the land at this time iv, x, 4. 
was not a much less part of the whole industry of the country 
than in the Middle Ages: for, in spite of her ceasing to export 
wool and wheat, there was so great an increase in the produce 
forced from her soil, that the rapid improvement in the arts 
of her agriculturists scarcely availed to hold in check the 
action of the law of diminishing return. But gradually a 
great deal of labour has been diverted from the fields to 
making expensive machinery for agricultural purposes. This 
change did not exert its full influence upon the numbers of 
those who were reckoned as agriculturists so long as the 
machinery was drawn by horses: for the work of tending 
them and supplying them with food was regarded as agri- 
cultural. But in recent years a rapid growth of the use of 
steam power in the fields has coincided with the increased 
importation of farm produce. The coal-miners who supply 
these steam-engines with fuel, and the mechanics who make 
them and manage them in the fields are not reckoned as 
occupied on the land, though the ultimate aim of their labour 
is to promote its cultivation. The real diminution then of 
England’s agriculture is not so great as at first sight appears; 
but there has been a change in its distribution. Many tasks 
which used once to be performed by agricultural labourers 
are now done by specialized workers who are classed as in the 
building, or road-making industries, as carriers and so on. 

And, partly for this reason the number of people who reside 
in purely agricultural districts has seldom diminished fast; 
and has often increased, even though the number of those 
engaged in agriculture has been diminishing rapidly. 

Attention has already been called to the influence which 
the importation of agricultural produce exerts in altering the bution of 
relative values of different soils : those falling most in value cuituSi 
which depended chiefly on their wheat crops, and which were ^ the 
not naturally fertile, though they were capable of being made country, 
to yield fairly good crops by expensive methods of cultivation. 
Districts in which such soils predominate, have contributed 
more than their share to the crowds of agricultural labourers 
who have migrated to the large towns; and thus the 
geographical distribution of industries within the country has 



276 


LOCALIZED INDUSTRIES 


IV, 1, 4. been still further altered. A striking instance of the in- 
fluence of the new means of transport is seen in those 
pastoral districts in the remoter parts of the United King- 
dom, which send dairy products by special express trains to 
London and other large towns, meanwhile drawing their own 
supplies of wheat from the further shores of the Atlantic or 
even the Pacific Ocean. 

Those set But nexfc, the changes of recent years have not, as would 
agriculture at first sight appear probable, increased the proportion of the 
not English people who are occupied in manufactures. The out- 
facturos England’s manufactures is certainly many times as 

great now as it was at the middle of the last century; but 
those occupied in manufacture of every kind were as large a 
percentage of the population in 1851 as in 1901; although 
those who make the machinery and implements which do a 
great part of the work of English agriculture, swell the 
numbers of the manufacturers. 

The chief explanation of this result lies in the wonderful 
tries in increase in recent years of the power of machinery. This 
therehas enabled us to produce ever increasing supplies of manu- 
factures of almost every kind both for our own use and for 
increase exportation without requiring any considerable increase in 
efficiency the number of people who tend the machines. And there- 
of labour. have been able to devote the labour set free from 

agriculture chiefly to supplying those wants in regard to 
which the improvements of machinery help us but little : the 
efficiency of machinery has prevented the industries localized 
in England from becoming as exclusively mechanical as they 
otherwise would. Prominent among the occupations v/hich 
have increased rapidly since 1851 in England at the expense 
of agriculture are the service of Government, central and 
local; education of all grades; medical service; musical, 
theatrical and other entertainments, besides mining, building, 
dealing and transport by road and railway. In none of these 
is very much direct help got from new inventions: man’s 
labour is not much more efficient in them now than it was a 
century ago : and therefore if the wants for which they make 
provision increase in proportion to our general wealth, it is 
only to be expected that they should absorb a constantly 
growing proportion of the industrial population. Domestic 



OLD INDUSTRIAL WORK IN NEW FORMS 


277 


servants increased rapidly for some years; and the total iv, x, 4. 
amount of work which used to fall to them is now increasing 
faster than ever. But much of it is now done, often with the 
aid of machinery, by persons in the employment of clothiers 
of all kinds, of hotel proprietors, confectioners, and even by 
various messengers from grocers, fishmongers and others who 
call for orders, unless they are sent by telephone. These 
changes have tended to increase the specialization and the 
localization of industries. 

Passing away from this illustration of the action of modern Transition 
forces on the geographical distribution of industries, we will subject of 
resume our inquiry as to how far the full economies of divi- chapter! 
sion of labour can be obtained by the concentration of large 
numbers of small businesses of a similar kind in the same 
locality; and how far they are attainable only by the aggre- 
gation of a large part of the business of the country into the 
hands of a comparatively small number of rich and powerful 
firms, or, as is commonly said, by production on a large scale; 
or, in other words, how far the economies of production on a 
large scale must needs be internal, and how far they can be 
external^, 

^ The percentage of the population occupied in the textile industries in the 
United Kingdom fell from 3-13 in 1881 to 2-43 in 1901; partly because much of 
the work done by them has been rendered so simple by semi-automatic machinery 
that it can be done fairly well by peoples that are in a relatiToly backward 
industrial condition; and partly because the chief textile goods retain nearly the 
same simple character as they had thirty or even three thousand years ago. On 
the other hand manufactures of iron and steel (including shipbuilding) have 
increased so greatly in complexity as well as in volume of output, that the per- 
centage of the population occupied in them rose from 2*39 in 1881 to 3-01 in 1901 ; 
although much greater advance has been meanwhile made in the machinery and 
methods employed in them than in the textile group. The remaining manu- 
facturing industries employed about the same percentage of the people in 1901 as 
in 1881. In the same time the tonnage of British shipping cleared from British ports 
increased by one half; and the number of dock labourers doubled, but that 
of seamen has slightly diminished. These facts are to be explained partly by vast 
improvements in the construction of ships and all appliances connected with them, 
and partly by the transference to dock labourers of nearly all tasks connected with 
handling the cargo some of which were even recently performed by the crew. 

Another marked change is the increased aggregate occupation of women in 
manufactures, though that of married women appears to have diminished, and 
that of children has certainly diminished greatly. 

The Summary Tables of the Census of 1911, published in 1915, show so many 
changes in classification since 1901 that no general view of recent developments can 
be safely made. But Table 64 of that Beport and Prof. D. Caradog Jones’ paper read 
before the Royal Statistical Society in December 1914 show that the developments 
of 1901-1911 differ from their predecessors in detail rather than in general character. 



CHAPTER XI. 

INDUSTRIAL ORGANIZATION, CONTINUED. PRODUCTION 
ON A LARGE SCALE. 


§1. The advantages of production on a large scale are 
The typical best shown in manufacture; under which head we may 
for our include all businesses engaged in working up material into 
pvi^ose forms in which it will be adapted for sale in distant markets, 
engaged The characteristic of manufacturing industries which makes 
in manu- them ofEcr generally the best illustrations of the advantages 
of production on a large scale, is their power of choosing 
freely the locality in which they will do their work. They 
are thus contrasted on the one hand with agriculture and 
other extractive industries (mining, quarrying, fishing, etc.), 
the geographical distribution of which is determined by 
nature; and on the other hand with industries that make or 


repair things to suit the special needs of individual con- 
sumers, from whom they cannot be far removed, at all events 
without great loss^. 

The The chief advantages of production on a large scale are 

economy r i .n e ^ t #• 

of material, economy of skill, economy of machinery and economy of 
materials: but the last of these is rapidly losing importance 
relatively to the other two. It is true that an isolated work- 
man often throws away a number of small things which would 
have been collected and turned to good account in a f actory^ ; 


' “Manufacture** is a term which has long lost any connection with its 
original use: and is now applied to those branches of production where machine 
and not hand work is most prominent. Koscher made the attempt to bring it 
back nearer to its old use by applying it to domestic as opposed to factory 
industries: but it is too late to do this now. 

• See Babbage’s instance of the manufacture of horn. Economy of Manu- 
factureSf ch. xxu. 



THE ECONOMY OP MATERIAL 


279 


but waste of this kind can scarcely occur in a localized manu- iv, n, 2. 
facture even if it is in the hands of small men; and there is not 
very much of it in any branch of industry in modern England, 
except agriculture and domestic cooking. No doubt many 
of the most important advances of recent years have been 
due to the utilizing of what had been a waste product; but 
this has been generally due to a distinct invention, either 
chemical or mechanical, the use of which has been indeed 
promoted by minute subdivision of labour, but has not been 
directly dependent on it^. 

Again, it is true that when a hundred sets of furniture, 
or of clothing, have to be cut out on exactly the same 
pattern, it is worth while to spend great care on so planning 
the cutting out of the boards or the cloth, that only a few 
small pieces are wasted. But this is properly an economy of 
skill; one planning is made to suffice for many tasks, and 
therefore can be done well and carefully. We may pass then 
to the economy of machinery. 

§ 2. In spite of the aid which subsidiary industries can The 
give to small manufactures, where many in the same branch ouiarge^^* 
of trade are collected in one neighbourhood^, they are still is^re^rds 
placed under a great disadvantage by the growing variety 
and expensiveness of machinery. For in a large establish- machinery, 
ment there are often many expensive machines each made 
specially for one small use. Each of them requires space 
in a good light, and thus stands for something considerable 
in the rent and general expenses of the factory; and inde- 
pendently of interest and the expense of keeping it in repair, 
a heavy allowance must be made for depreciation in conse- 
quence of its being probably improved upon before long^. 

' Instances are the utilization of the waste from cotton, wool, silk and other 
textile materials; and of the by-products in the metallurgical industries, in the 
manufacture of soda and gas, and in the American mineral oil and meat packing 
industries. 

* See the preceding chapter, § 3. 

' The average time which a machine will last before being superseded is in 
many trades not more than fifteen years, while in some it is ten years or even 
less. There is often a loss on the use of a machine unless it earns every year 
twenty per cent, on its cost; and when the operation performed by such a machine 
costing £500 adds only a hundredth part to the value of the material that passes 
through it — and this is not an extreme case — there will be a loss on its use unless 
it can be applied in producing at least £10,000 worth of goods annually. 



280 


IV, II, 2. 


Advan- 
tages with 
regard to 
the inven- 
tion of 
improved 
machinery 


The small 
manufac- 
turer 
cannot 
often 
afford to 
experi- 
ment. 


PRODUCTION ON A LARGE SCALE 

A small manufacturer must therefore have many things done 
by hand or by imperfect machinery, though he knows how to 
have them done better and cheaper by special machinery, if 
only he could find constant employment for it. 

But next, a small manufacturer may not always be 
acquainted with the best machinery for his purpose. It is 
true that if the industry in which he is engaged has been 
long established on a large scale, his machinery will be well 
up to the mark, provided he can afford to buy the best 
in the market. In agriculture and the cotton industries, for 
instance, improvements in machinery are devised almost 
exclusively by machine makers; and they are accessible to 
all, at any rate on the payment of a royalty for patent right. 
But this is not the case in industries that are as yet in an 
early stage of development or are rapidly changing their 
form; such as the chemical industries, the watchmaking 
industry and some branches of the jute and silk manufac- 
tures; and in a host of trades that are constantly springing 
up to supply some new want or to work up some new 
material. 

In all such trades new machinery and new processes are 
for the greater part devised by manufacturers for their own 
use. Each new departure is an experiment which may fail; 
those which succeed must pay for themselves and for the 
failure of others; and though a small manufacturer may think 
he sees his way to an improvement, he must reckon on having 
to work it out tentatively, at considerable risk and expense 
and with much interruption to his other work : and even if he 
should be able to perfect it, he is not likely to be able to make 
the most of it. For instance, he may have devised a new 
speciality, which would get a large sale if it could be brought 
under general notice: but to do this would perhaps cost 
many thousand pounds; and, if so, he will probably have to 
turn his back on it. For it is almost impossible for him to 
discharge, what Roscher calls a characteristic task of the 
modern manufacturer, that of creating new wants by showing 
people something which they had never thought of having 
before; but which they want to have as soon as the notion 
is suggested to them : in the pottery trade for example the 



ADVANTAGES IN THE USE OP MACHINERY 


281 


small manufacturer cannot afford even to make experiments iv, n, 2. 
with new patterns and designs except in a very tentative 
way. His chance is better with regard to an improvement 
in making things for which there is already a good market. 

But even here he cannot get the full benefit of his invention 
unless he patents it; and sells the right to use it; or borrows 
some capital and extends his business; or lastly changes the 
character of his business and devotes his capital to that 
particular stage of the manufacture to which his improve- 
ment applies. But after all such cases are exceptional: 
the growth of machinery in variety and expensiveness presses 
hard on the small manufacturer everywhere. It has already 
driven him completely out of some trades and is fast driving 
him out of others^. 

There are however some trades in which the advantages Butin 
which a large factory derives from the economy of machinery t^^es a 
almost vanish as soon as a moderate size has been reached, moderate 
For instance in cotton spinning, and calico weaving, a com- 
paratively small factory will hold its own and give constant best 
employment to the best known machines for every process: 
so that a large factory is only several parallel smaller factories 
under one roof; and indeed some cotton-spinners, when en- 
larging their works, think it best to add a weaving depart- 
ment. In such cases the large business gains little or no 
economy in machinery; and even then it generally saves 
something in building, particularly as regards chimneys, and 

‘ In many businesses only a small percentage of improvements are patented. 

They consist of many small steps, which it would not be worth while to patent 
one at a time. Or their chief point lies in noticing that a certain thing ought to 
be done; and to patent one way of doing it, is only to set other people to work to 
find out other ways of doing it against which the patent cannot guard. If one 
patent is taken out, it is often necessary to “block” it, by patenting other methods 
of arriving at the same result; the patentee does not expect to use them himself, 
but he wants to prevent others from using them. All this involves worry and 
loss of time and money: and the large manufacturer prefers to keep his improve- 
ment to himself and get what benefit he can by using it. While if the small 
manufacturer takes out a patent, he is likely to be harassed by infringements: 
and even though he may win “with costs” the actions in which he tries to defentl 
himself, he is sure to be ruined by them if they are numerous. It is generally in 
the public interest that an improvement should be published, even though it is at 
the same time patented. But if it is patented in England and not in other 
countries, as is often the case, English manufacturers may not use it, even though 
they were just on the point of finding it out for themselves before it was patented ; 
while foreign manufacturers learn all about it and can use it freely. 



282 


PRODUCTION ON A LARGE SCALE 


IV, *1,3. 


Advan- 
tages of 
a large 
business, 
or of 

associated 
groups of 
businesses, 
in buying 
and selling. 


in the economy of steam power, and in the management and 
repairs of engines and machinery. Large soft-goods factories 
have carpenters* and mechanics’ shops, which diminish the 
cost of repairs, and prevent delays from accidents to the 
plant^. 

Akin to these last, there are a great many advantages 
which a large factory, or indeed a large business of almost 
any kind, nearly always has over a small one, A large 
business buys in great quantities and therefore cheaply; 
it pays low freights and saves on carriage in many ways, 
particularly if it has a railway siding. It often sells in large 
quantities, and thus saves itself trouble ; and yet at the same 
time it gets a good price, because it offers conveniences to 
the customer by having a large stock from which he can 
select and at once fill up a varied order; while its reputation 
gives him confidence. It can spend large sums on advertis- 
ing by commercial travellers and in other ways; its agents 
give it trustworthy information on trade and personal 
matters in distant places, and its own goods advertise one 
another. 

The economies of highly organized buying and selling 
are among the chief causes of the present tendency towards 
the fusion of many businesses in the same industry or trade 
into single huge aggregates; and also of trading federations 
of various kinds, including German cartels and centralized 
co-operative associations. They have also always promoted 
the concentration of business risks in the hands of large 
capitalists who put out the work to be done by smaller 
men^. 


* It is a remarkable fact that cotton and some other textile factories form an 
exception to the general rule that the capital required per head of the workers is 
generally greater in a large factory than in a small one. The reason is that in 
most other businesses the large factory has many things done by expensive 
machines which are done by hand in a small factory; so that while the wages 
bill is less in proportion to the output in a large factory than in a small one, the 
value of the machinery and the factory space occupied by the machinery is much 
greater. But in the simpler branches of the textile trades, small works have the 
same machinery as large works have; and since small steam-engines, etc. are 
proportionately more expensive than large ones, they require a greater fixed 
capital in proportion to their output than larger factories do; and they are likely 
to require a floating capital also rather greater in proportion. 

• See below TV. in. 3. 



ADVANTAGES OP A LARGE FIRM IN ORGANIZATION 


283 


§3. Next, with regard to the economy of skill. Every- iv, xi, 3. 
thing that has been said with regard to the advantages 
which a large establishment has in being able to afford 
highly specialized machinery applies equally with regard as 
to highly specialized skill. It can contrive to keep each of specialized 
its employees constantly engaged in the most difficult work ® 
of which he is capable, and yet so to narrow the range of his 
work that he can attain that facility and excellence which 
come from long-continued practice. But enough' has already 
been said on the advantage of division of labour: and we 
may pass to an important though indirect advantage which 
a manufacturer derives from having a great many men in 
his employment. 

The large manufacturer has a much better chance than the 
a small one has, of getting hold of men with exceptional feViing 
natural abilities, to do the most difficult part of his work — 
that on which the reputation of his establishment chiefly 
depends. This is occasionally important as regards mere 
handiwork in trades which require much taste and originality, 
as for instance that of a house decorator, and in those which 
require exceptionally fine w'orkmanship, as for instance that 
of a manufacturer of delicate mechanism^. But in most 
businesses its chief importance lies in the facilities which 
it gives to the employer for the selection of able and tried 
men, men whom he trusts and who trust him, to be his 
foremen and heads of departments. We are thus brought 
to the central problem of the modern organization of in- 
dustry, viz. that which relates to the advantages and 
disadvantages of the subdivision of the work of business 
management. 


* Thus Boulton writing in 1770 when he had 700 or 800 persons employed 
as metallic artists and workers in tortoiseshell, stones, glass, and enamel, says: — 
“I have trained up many, and am training up more, plain country lads into good 
workmen; and wherever I find indications of skill and ability, I encourage them. 
I have likewise established correspondence with almost every mercantile town in 
Europe, and am thus regularly supplied with orders for the grosser articles in 
common demand, by which I am enabled to employ such a number of hands as to 
provide me with an ample choice of artists for the finer branches of work : and' I 
am thus encouraged to erect and employ a more extensive apparatus than it would 
be prudent to employ for the production of the finer articles only/’ Smiles* Life 
of BouUon^ p. 128. 



284 


PRODUCTION ON A LARGE SCALE 


IV, XI, 4. 

The sub- 
division 
of the 
work of 
business 
manage- 
ment: 
advantages 
of the large 
manu- 
facturer; 


those of 
the small 
manu- 
facturer. 


§ 4. The head of a large business can reserve all his 
strength for the broadest and most fundamental problems of 
his trade : he must indeed assure himself that his managers, 
clerks and foremen are the right men for their work, and are 
doing their work well; but beyond this he need not trouble 
himself much about details. He can keep his mind fresh 
and clear for thinking out the most di:@&cult and vital pro- 
blems of his business; for studying the broader movements 
of the markets, the yet undeveloped results of current events 
at home and abroad ; and for contriving how to improve the 
organization of the internal and external relations of his 
business. 

For much of this work the small employer has not the 
time if he has the ability; he cannot take so broad a survey 
of his trade, or look so far ahead; he must often be content 
to follow the lead of others. And he must spend much of 
his time on work that is below him; for if he is to succeed 
at all, his mind must be in some respects of a high quality, 
and must have a good deal of originating and organizing 
force; and yet he must do much routine work. 

On the other hand the small employer has advantages 
of his own. The master’s eye is everywhere; there is no 
shirking by his foremen or workmen, no divided responsibility, 
no sending half-understood messages backwards and forwards 
from one department to another. He saves much of the 
book-keeping, and nearly all of the cumbrous system of 
checks that are necessary in the business of a large firm; 
and the gain from this source is of very great importance 
in trades which use the more valuable metals and other 
expensive materials. 

And though he must always remain at a great disadvan- 
tage in getting information and in making experiments, yet 
in this matter the general course of progress is on his side. 
For External economies are constantly growing in importance 
relatively to Internal in all matters of Trade-knowledge: 
newspapers, and trade and technical publications of all kinds 
are perpetually scouting for him and bringing him much 
of the knowledge he wants — knowledge which a little while 
ago would have been beyond the reach of anyone who 



LIMITS TO THE RAPID INCREASE OP A BUSINESS 


286 


could not afford to have well-paid agents in many distant iv, xi,6. 
places. Again, it is to his interest also that the secrecy of 
business is on the whole diminishing, and that the most 
important improvements in method seldom remain secret for 
long after they have passed from the experimental stage. It 
is to his advantage that changes in manufacture depend less 
on mere rules of thumb and more on broad developments of 
scientific principle; and that many of these are made by 
students in the pursuit of knowledge for its own sake, and 
are promptly published in the general interest. Although 
therefore the small manufacturer can seldom be in the front 
of the race of progress, he need not be far from it, if he has 
the time and the ability for availing himself of the modern 
facilities for obtaining knowledge. But it is true that he 
must be exceptionally strong if he can do this without neg- 
lecting the minor but necessary details of the business. 

§ 5. In agriculture and other trades in which a man Rapid 
gains no very great new economies by increasing the scale of of fiTms 
his production, it often happens that a business remains of 
about the same size for many years, if not for many generations. 

But it is otherwise in trades in which a large business can economies 
command very important advantages, which are beyond the tion^^on'a ' 
reach of a small business. A new man, working his way 
up in such a trade, has to set his energy and flexibility, his 
industry and care for small details, against the broader 
economies of his rivals with their larger capital, their higher 
specialization of machinery and labour, and their larger trade 
connection. If then he can double his production, and sell 
at anything like his old rate, he will have more than doubled 
his profits. This will raise his credit with bankers and other 
shrewd lenders; and will enable him to increase his business 
further, and to attain yet further economies, and yet higher 
profits: and this again will increase his business and so on. 

It seems at first that no point is marked out at which he 
need stop. And it is true that, if, as his business increased, 
his faculties adapted themselves to his larger sphere, as they 
had done to his smaller; if he retained his originality, and 
versatility and power of initiation, his perseverance, his tact 
and his good luck for very many years together; he might 



286 


IV, XI, 6. 


Where 
marketing 
is easy, the 
economies 
of produc- 
tion on a 
large scale 
are mostly 
open to 
firms of 
moderate 
size. 


PRODUCTION ON A LARGE SCALE 

then gather into his hands the whole volume of production in 
his branch of trade for his district. And if his goods were 
not very difficult of transport; nor of marketing, he might 
extend this district very wide, and attain something like a 
limited monopoly; that is, of a monopoly limited by the con- 
sideration that a very high price would bring rival producers 
into the field. 

But long before this end is reached, his progress is likely 
to be arrested by the decay, if not of his faculties, yet of his 
liking for energetic work. The rise of his firm may be pro- 
longed if he can hand down his business to a successor almost 
as energetic as himself^. But the continued very rapid 
growth of his firm requires the presence of two conditions 
which are seldom combined in the same industry. There 
are many trades in which an individual producer could secure 
much increased “internar^ economies by a great increase of 
his output; and there are many in which he could market that 
output easily; yet there are few in which he could do both. 
And this is not an accidental, but almost a necessary result. 

For in most of those trades in which the economies of 
production on a large scale are of first-rate importance, 
marketing is difficult. There are, no doubt, important ex- 
ceptions. A producer may, for instance, obtain access to the 
whole of a large market in the case of goods which are so 
simple and uniform that they can be sold wholesale in vast 
quantities. But, most goods of this kind are raw produce; 
and nearly all the rest are plain and common, such as steel 
rails or calico; and their production can be reduced to 
routine, for the very reason that they are plain and common. 
Therefore in the industries which produce them, no firm 
can hold its own at all unless equipped with expensive 
appliances of nearly the latest type for its main work; 
while subordinate operations can be performed by sub- 
sidiary industries; and in short there remains no very great 
difference between the economies available by a large and by 
a very large firm; and the tendency of large firms to drive 
out small ones has already gone so far as to exhaust most 

* Means to this end and their practical limitations are discussed in the latter 
half of the following chapter. 



LARGE AND SMALL TRADING ESTABLISHMENTS 


287 


of the strength of those forces by which it was originally iv, xi, 6. 
promoted. 

But many commodities with regard to which the tendency But in 
to increasing return acts strongly are, more or less, specialities : ^arkethig^ 
some of them aim at creating a new want, or at meeting 
an old want in a new way. Some of them are adapted to 
special tastes, and can never have a very large market; and 
some have merits that are not easily tested, and must win 
their way to general favour slowly. In all such cases the 
sales of each business are limited, more or less according to 
circumstances, to the particular market which it has slowly 
and expensively acquired; and though the production itself 
might be economically increased very fast, the sale could 
not. 


Lastly, the very conditions of an industry which enable a Causes 
new firm to attain quickly command over new economies of enable 
production, render that firm liable to be supplanted quickly 
by still younger firms with yet newer methods. Especially 
where the powerful economies of production on a large scale jj 
are associated with the use of new appliances and new 
methods, a firm which has lost the exceptional energy which 
enabled it to rise, is likely ere long quickly to decay; and the 
full life of a large firm seldom lasts very long. 

§ 6. The advantages which a large business has over Advan- 
a small one are conspicuous in manufacture, because, as we lafge 
have noticed, it has special facilities for concentrating a great of 
deal of work in a small area. But there is a strong tendency 
for large establishments to drive out small ones in many 
other industries. In particular the retail trade is being 
transformed, the small shopkeeper is losing ground daily. 

Let us look at the advantages which a large retail shop in reuii 
or store has in competing with its smaller neighbours. To the 
begin with, it can obviously buy on better terms, it can get ^^^rease 
its goods carried more cheaply, and can offer a larger variety 
to meet the taste of customers. Next, it has a great economy 
■of skill: the small shopkeeper, like the small manufacturer, 
must spend much of his time in routine work that requires 
no judgment: whereas the head of a large establishment, 
and even in some cases his chief assistants, spend their whole 



288 


PRODUCTION ON A LARGE SCALE 


IV, II, 6. 


owiii{{ to 
the growth 
of cash 
payments 


and the 
increasing 
variety of 
the goods 
in common 
demand. 


time in using their judgment. Until lately these advantages 
have been generally outweighed by the greater facilities 
which the small shopkeeper has for bringing his goods to 
the door of his customers; for humouring their several 
tastes; and for knowing enough of them individually to be 
able safely to lend them capital, in the form of selling them 
goods on credit. 

But within recent years there have been many changes 
all telling on the side of large establishments. The habit of 
buying on credit is passing away; and the personal relations 
between shopkeeper and customer are becoming more distant. 
The first change is a great step forwards: the second is on 
some accounts to be regretted, but not on all; for it is partly 
due to the fact that the increase of true self-respect among 
the wealthier classes is making them no longer care for the 
subservient personal attentions they used to require. Again, 
the growing value of time makes people less willing than 
they were to spend several hours in shopping; they now 
often prefer to spend a few minutes in writing out a long 
list of orders from a varied and detailed price-list; and this 
they are enabled to do easily by the growing facilities for 
ordering and receiving parcels by post and in other ways. 
And when they do go shopping, tramcars and local trains are 
often at hand to take them easily and cheaply to the large 
central shops of a neighbouring town. All these changes 
render it more difficult than it was for the small shopkeeper 
to hold his own even in the provision trade, and others in 
which no great variety of stock is required. 

But in many trades the ever-growing variety of commo- 
dities, and those rapid changes of fashion which now extend 
their baneful influence through almost every rank of society, 
weight the balance even more heavily against the small 
dealer, for he cannot keep a sufficient stock to offer much 
variety of choice, and if he tries to follow any movement of 
fashion closely, a larger proportion of his stock will be left 
stranded by the receding tide than in the case of a large 
shopkeeper. Again, in some branches of the clothing and 
furniture and other trades the increasing cheapness of 
machine-made goods is leading people to buy ready-made 



THE CARRYING TRADES. MINES 


289 


things from a large store instead of having them made to iv, xi, 7 . 
order by some small maker and dealer in their neighbour- 
hood. Again, the large shopkeeper, not content with re- 
ceiving travellers from the manufacturers, makes tours either 
himself or by his agent in the most important manufacturing 
districts at home and abroad; and he thus often dispenses 
with middlemen between him and the manufacturer. A tailor 
with moderate capital shows his customers specimens of 
many hundreds of the newest cloths, and perhaps orders 
by telegraph the selected cloth to be sent by parcels’ post. 

Again, ladies often buy their materials direct from the 
manufacturer, and get them made up by dressmakers who 
have scarcely any capital. Small shopkeepers seem likely 
always to retain some hold of the minor repairing trades: 
and they keep their own fairly well in the sale of perishable 
food, especially to the working classes, partly in consequence 
of their being able to sell goods on credit and to collect 
small debts. In many trades however a firm with a large 
capital prefers having many small shops to one large one. 

Buying, and whatever production is desirable, is concentrated 
under a central management; and exceptional demands are 
met from a central reserve, so that each branch has large 
resources, without the expense of keeping a large stock. 

The branch manager has nothing to divert his attention 
from his customers; and, if an active man, with direct 
interest in the success of his branch, may prove himself 
a formidable rival to the small shopkeeper; as has been 
shown in many trades connected with clothing and food. 

§ 7. We may next consider those industries whose geo- The 
graphical position is determined by the nature of their work, trades. 

Country carriers and a few cabmen are almost the only 
survivals of small industry in the carrying trade. Railways 
and tramways are constantly increasing in size, and the 
capital required to work them is increasing at an even 
greater rate. The growing intricacy and variety of com- 
merce is adding to the advantages which a large fleet of 
ships under one management derives from its power of 
delivering goods promptly, and without breach of responsi- 
bility, in many different ports; and as regards the vessels 
M. 10 



290 


PRODUCTION ON A LAROB SCALE 


IV, XI, 7. 


Mines and 
quarries. 


The 
case of 
^riculture 
is deferred. 


themselves time is on the side of large ships, especially in the 
passenger trade^. As a consequence the arguments in favour 
of the State’s undertaking business are stronger in some 
branches of the carrying trade than in any other, except the 
allied undertakings of carrying away refuse, and bringing in 
water, gas, etc.^ 

The contest between large and small mines and quarries 
has not so clearly marked a tendency. The history of the 
State management of mines is full of very dark shadows; 
for the business of mining depends too much on the probity 
of its managers and their energy and judgment in matters of 
detail as well as of general principle, to be well managed by 
State officials: and for the same reason the small mine or 
quarry may fairly be expected, other things being equal, to 
hold its own against the large one. But in some cases the 
cost of deep shafts, of machinery and of establishing means 
of communication, are too great to be borne by any but a 
very large business. 

In agriculture there is not much division of labour, and 
there is no production on a very large scale; for a so-called 
‘'large farm” does not employ a tenth part of the labour 
which is collected in a factory of moderate dimensions. This 
is partly due to natural causes, to the changes of the seasons 
and to the difficulty of concentrating a great deal of labour in 
any one place; but it is partly also due to causes connected 
with varieties of land tenure. And it will be best to post- 
pone discussion of all of them till we come to study demand 
and supply in relation to land in the sixth Book. 

• 

> A ship^s carrying power varies as the cube of her dimensions, while the 
resistance offered by the water increases only a little faster than the square of 
hex dimensions; so that a large ship requires less coal in proportion to its 
tonnage than a small one. It also requires less labour, especially that of navi- 
gation; while to passengers it offers greater safety and comfort, more choice 
of company and better professional attendance. In short, the small ship has no 
chance of competing with the large between ports which large ships can 
easily enter, and between which the traffic is sufficient to enable them to fill 
up quickly, 

* It is characteristic of the great economic change of the last hundred yean that 
when the first railway bills were passed, provision was made for allowing private 
individuals to run their own conveyances on them, Just as they do on a h^hway 
Of ft canal; and now we find H difficult to imagine bow people coidd hftre expected, 
as they certainly did, that this plan would prove a practicable one. 



CHAPTER XIL 


INDUSTRIAL ORGANIZATION, CONTINUED. BUSINESS 
MANAGEMENT. 

§ 1 . Hitherto we have been considering the work of iv, xn, i. 
management chiefly in regard to the operations of a manu- Problems 
facturing or other business employing a good deal of manual solved, 
labour. But we now have to consider more carefully the 
variety of the functions which business men discharge; the 
manner in which they are distributed among the heads 
of a large business, and again between different classes of 
business which co-operate in allied branches of production 
and marketing. And incidentally we have to inquire how 
it occurs that, though in manufacturing at least nearly every 
individual business, so long as it is well managed, tends to 
become stronger the larger it has grown ; and though primd 
fade we might therefore expect to see large firms driving 
their smaller rivals completely out of many branches of 
industry, yet they do not in fact do so. 

‘‘Business’’ is taken here broadly to include all provision 
for the wants of others which is made in the expectation of 
payment direct or indirect from those who are to be benefited. 

It is thus contrasted with the provision for his wants which 
each one makes for himself, and with those kindly services 
which are prompted by friendship and family affection. 

The primitive handicraftsman managed his whole business The 
for himself ; but since his customers were with few exceptions 
his immediate neighbours, since he required very little capital, 
since the plan of production was arranged for him by custom, 
and since he had no labour to superintend outside of his own consumer 
household, these tasks did not involve any very great mental 
strain. He was far from enjoying unbroken prosperity; war 



292 


BUSINESS MANAGEMENT 


IV, xii, 1. 


and so do 
as a rule 
the learned 
professions 
now. 


But 

there are 
exceptions 
even here. 


and scarcity were constantly pressing on him and his neigh- 
bours, hindering his work and stopping their demand for his 
wares. But he was inclined to take good and evil fortune, 
like sunshine and rain, as things beyond his control: his 
fingers worked on, but his brain was seldom weary. 

Even in modern England we find now and then a village 
artisan who adheres to primitive methods, and makes things 
on his own account for sale to his neighbours; managing his 
own business and undertaking all its risks. But such cases 
are rare : the most striking instances of an adherence to old- 
fashioned methods of business are supplied by the learned 
professions; for a physician or a solicitor manages as a rule 
his own business and does all its work. This plan is not 
without its disadvantages: much valuable activity is wasted 
or turned to but slight account by some professional men of 
first-rate ability, who have not the special aptitude required 
for obtaining a business connection; they would be better 
paid, would lead happier lives, and would do more good ser- 
vice for the world if their work could be arranged for them 
by some sort of a middleman. But yet on the whole things 
are probably best as they are: there are sound reasons behind 
the popular instinct which distrusts the intrusion of the 
middleman in the supply of those services which require 
the highest and most delicate mental qualities, and which 
can have their full value only where there is complete 
personal confidence. 

English solicitors however act, if not as employers or 
undertakers, yet as agents for hiring that branch of the legal 
profession which ranks highest, and whose work involves the 
hardest mental strain. Again, many of the best instructors 
of youth sell their services, not directly to the consumer, 
but to the governing body of a college or school, or to a head 
master, who arranges for their purchase: the employer sup- 
plies to the teacher a market for his labour; and is supposed 
to give to the purchaser, who may not be a good judge him- 
self, some sort of guarantee as to the quality of the teaching 
supplied. 

Again, artists of every kind, however eminent, often find 
it to their advantage to employ someone else to arrange for 



THE BUSINESS UNDERTAKER OR ADVENTURER 


293 


them with customers; while those of less established repute iv, xn, 
are sometimes dependent for their living on capitalist traders, 1. * 
who are not themselves artists, but who understand how to 
sell artistic work to the best advantage. 

§ 2. But in the greater part of the business of the modern in most 
world the task of so directing production that a given effort 
may be most effective in supplying human wants has to be 
broken up and given into the hands of a specialized body of cIms of 
employers, or to use a more general term, of business men. takers 
They “adventure’’ or “undertake” its risks; they bring 
together the capital and the labour required for the work; 
they arrange or “engineer” its general plan, and superintend 
its minor details. Looking at business men from one point 
of view we may regard them as a highly skilled industrial 
grade, from another as middlemen intervening between the 
manual worker and the consumer. 

There are some kinds of business men who undertake 
great risks, and exercise a large influence over the welfare 
both of the producers and of the consumers of the wares in 
which they deal, but who are not to any considerable extent 
direct employers of labour. The extreme type of these is 
the dealer on the stock exchange or the produce markets, 
whose daily purchases and sales are of vast dimensions, and 
who yet has neither factory nor warehouse, but at most an 
oflSce with a few clerks in it. The good and the evil effects 
of the action of speculators such as these are however very 
complex; and we may give our attention at present to those 
forms of business in which administration counts for most 
and the subtler forms of speculation for least. Let us then 
take some illustrations of the more common types of business, 
and watch the relations in which the undertaking of risks 
stands to the rest of the work of the business man. 

§ 3, The building trade will serve our purpose well, iiiustra- 
partly because it adheres in some respects to primitive house- 
methods of business. Late in the Middle Ages it was quite 
common for a private person to build a house for himself 
without the aid of a master builder; and the habit is not 
even now altogether extinct. A person who undertakes his 
own building must hire separately all his workmen, he must 



^USIN^ MAlTAOMfiNT 


m 


lV,xn,l 


The chief 
risks of 
under- 
taking 
sometimes 
separated 
from 
detailed 
manage- 
ment 
in the 
building 
trades; 


in the 
textile 
trades; 


watch them and check their demands for payment; he must 
buy his materials from many quarters, and he must hire, or 
dispense with the use of, expensive machinery. He probably 
pays more than the current wages; but here others gain what 
he loses. There is however great waste in the time he spends 
in bargaining with the men and testing and directing their 
work by his imperfect knowledge; and again in the time that 
he spends in finding out what kinds and quantities he wants 
of different materials, and where to get them best, and so on. 
This waste is avoided by that division of labour which assigns 
to the professional builder the task of superintending details, 
and to the professional architect the task of drawing plans. 

The division of labour is often carried still further when 
houses are built not at the expense of those who are to live 
in them, but as a building speculation. When this is done 
on a large scale, as for instance in opening out a new suburb, 
the stakes at issue are so large as to offer an attractive field 
to powerful capitalists with a very high order of general 
business ability, but perhaps with not much technical know- 
ledge of the building trade. They rely on their own judgment 
for the decision as to what are likely to be the coming rela- 
tions of demand and supply for different kinds of houses; but 
they entrust to others the management of details. They 
employ architects and surveyors to make plans in accordance 
with their general directions; and then enter into contracts 
with professional builders for carrying them out. But they 
themselves undertake the chief risks of the business, and 
control its general direction. 

§ 4. It is well known that this division of responsibility 
prevailed in the woollen trade just before the beginning 
of the era of large factories: the more speculative work and 
the broader risks of buying and selling being taken over 
by the undertakers, who were not themselves employers of 
labour; while the detailed work of superintendence and the 
narrower risks of carrying out definite contracts were handed 
over to small masters^. This plan is still extensively followed 
in some branches of the textile trades, especially those in 
which the difficulty of forecasting the future is very great. 

* Compare Appendix A, 13. 



THE UNDERTAKER WHO IS NOT AN EMPLOYER 


295 


Manchester warehousemen give themselves to studying the iv, m, 4. 
movements of fashion, the markets for raw materials, the 
general state of trade, of the money market and of politics, 
and all other causes that are likely to influence the prices of 
different kinds of goods during the coming season; and after 
employing, if necessary, skilled designers to carry out their 
ideas (just as the building speculator in the previous case 
employed architects), they give out to manufacturers in 
different parts of the world contracts for making the goods 
on which they have determined to risk their capital. 

In the clothing trades especially we see a revival of what 
has been called the ‘'house industry,” which prevailed long 
ago in the textile industries; that is, the system in which 
large undertakers give out work to be done in cottages and 
very small workshops to persons who work alone or with the 
aid of some members of their family, or who perhaps employ 
two or three hired assistants^. In remote villages in almost 
every county of England agents of large undertakers come 
round to give out to the cottagers partially prepared mate- 
rials for goods of all sorts, but especially clothes such as 
shirts and collars and gloves; and take back with them the 
finished goods. It is however in the great capital cities of 
the world, and in other large towns, especially old towns, 
where there is a great deal of unskilled and unorganized 
labour, with a somewhat low physique and morale, that 
the system is most fully developed, especially in the cloth- 
ing trades, which employ two hundred thousand people in 
London alone, and in the cheap furniture trades. There is 
a continual contest between the factory and the domestic 
system, now one gaining ground and now the other: for 

* German economists call this “factory like” (fabrikmassig) house industry, 
as distinguished from the “national” house industry, which uses the intervals 
of other work (especially the winter interruptions of agriculture) for subsidiary 
work in making textile and other goods. (See Schonberg on Gewerhe in his 
Handhuch.) Domestic workers of this last class were common all over Europe 
in tlie Middle Ages but are now becoming rare except in the mountains and 
in eastern Europe. They are not always well advised in their choice of work; 
and much of what they make could be made better with far less labour in 
factories, so that it cannot be sold profitably in the open market: but for the most 
part they make for their own or their neighbours^ use, and thus save the profits 
of a series of middlemen. Compare Survival of domestic industries by Gonner In 
the Economic Journal^ Vol. ii. 



296 


IV, xn, 4. 


in Sheffield 
trades; 


in the 

shipping 

trade; 


and in the 
production 
of books 
etc. 


This plan 
has advan> 
tages; 


but is 
liable to 
abuse. 


BUSINESS MANAGEMENT 

instance just at present the growing use of sewing machines 
worked by steam power is strengthening the position of the 
factories in the boot trade; while factories and workshops 
are getting an increased hold of the tailoring trade. On the 
other hand the hosiery trade is being tempted back to the 
dwelling-house by recent improvements in hand knitting 
machines; and it is possible that new methods of distri- 
buting power by gas and petroleum and electric engines 
may exercise a like influence on many other industries. 

Or there may be a movement towards intermediate plans, 
similar to those which are largely followed in the Sheffield 
trades. Many cutlery firms for instance put out grinding 
and other parts of their work, at piece-work prices, to 
working men who rent the steam power which they require, 
either from the firm from whom they take their contract 
or from someone else: these workmen sometimes employing 
others to help them, sometimes working alone. 

Again, the foreign merchant very often has no ships of his 
own, but gives his mind to studying the course of trade, and 
undertakes himself its chief risks; while he gets his carrying 
done for him by men who require more administrative ability, 
but need not have the same power of forecasting the subtler 
movements of trade; though it is true that as purchasers of 
ships they have great and difficult trade risks of their own. 
Again, the broader risks of publishing a book are borne by 
the publisher, perhaps in company with the author; while 
the printer is the employer of labour and supplies the 
expensive types and machinery required for the business. 
And a somewhat similar plan is adopted in many branches 
of the metal trades, and of those which supply furniture, 
clothing, etc. 

Thus there are many ways in which those who undertake 
the chief risks of buying and selling may avoid the trouble 
of housing and superintending those who work for them. 
They all have their advantages; and when the workers are 
men of strong character, as at Sheffield, the results are on 
the whole not unsatisfactory. But unfortunately it is often 
the weakest class of workers, those with the least resource 
and the least self-control who drift into work of this kind. 



THE UNDERTAKER WHO IS AN EMPLOYER 


297 


The elasticity of the system which recommends it to the iv, xn, 5 . 
undertaker, is really the means of enabling him to exercise, if 
he chooses, an undesirable pressure on those who do his work. 

For while the success of a factory depends in a great 
measure on its having a set of operatives who adhere steadily 
to it, the capitalist who gives out work to be done at home 
has an interest in retaining a great many persons on his 
books; he is tempted to give each of them a little employ- 
ment occasionally and play them off one against another; 
and this he can easily do because they do not know one 
another, and cannot arrange concerted action. 

§ 5. When the profits of business are under discussion Several 
they are generally connected in people’s minds with thefuL\ions 
employer of labour: ''the employer” is often taken as a 
term practically coextensive with the receiver of business 
profits. But the instances which we have just considered manu- 

* fsictur©!* 

are sufficient to illustrate the truth that the superintendence 
of labour is but one side, and often not the most important 
side of business work; and that the employer who undertakes 
the whole risks of his business really performs two entirely 
distinct services on behalf of the community, and requires 
a twofold ability. 

To return to a class of considerations already noticed the 
(IV. XI. 4 and 5), the manufacturer who makes goods not required 
to meet special orders but for the general market, must, 
his first role as merchant and organizer of production, have 
a thorough knowledge of things in his own trade. He must 
have the power of forecasting the broad movements of pro- 
duction and consumption, of seeing where there is an oppor- 
tunity for supplying a new commodity that will meet a real 
want or improving the plan of producing an old commodity. 

He must be able to judge cautiously and undertake risks 
boldly; and he must of course understand the materials and 
machinery used in his trade. 

But secondly in this role of employer he must be a natural 
leader of men. He must have a power of first choosing his 
assistants rightly and then trusting them fully; of interesting 
them in the business and of getting them to trust him, so as 
to bring out whatever enterprise and power of origination 



298 


BUSINESS MANAGEMENT 


IV, XII, 6. 


The supply 
of business 
ability may 
be dis- 
cussed in 
connection 
with the 
forms of 
business 
manage- 
ment. 


The son of 
a business 
man has a 
good start. 


there is in them; while he himself exercises a general control 
over everything, and preserves order and unity in the main 
plan of the business. 

The abilities required to make an ideal employer are 
so great and so numerous that very few persons can exhibit 
them all in a very high degree. Their relative importance 
however varies with the nature of the industry and the size 
of the business; and while one employer excels in one set of 
qualities, another excels in another; scarcely any two owe 
their success to exactly the same combination of advantages. 
Some men make their way by the use of none but noble 
qualities, while others owe their prosperity to qualities in 
which there is very little that is really admirable except 
sagacity and strength of purpose. 

Such then being the general nature of the work of 
business management, we have next to inquire what op- 
portunities different classes of people have of developing 
business ability; and, when they have obtained that, what 
opportunities they have of getting command over the capital 
required to give it scope. We may thus come a little closer 
to the problem stated at the beginning of the chapter, and 
examine the course of development of a business firm during 
several consecutive generations. And this inquiry may con- 
veniently be combined with some examination of the different 
forms of business management. Hitherto we have considered 
almost exclusively that form in which the whole responsi- 
bility and control rests in the hands of a single individual. 
But this form is yielding ground to others in which the 
supreme authority is distributed among several partners 
or even a great number of shareholders. Private firms and 
joint-stock companies, co-operative societies and public cor- 
porations are taking a constantly increasing share in the 
management of business; and one chief reason of this is 
that they offer an attractive field to people who have good 
business abilities, but have not inherited any great business 
opportunities. 

§S. It is obvious that the son of a man already esta- 
blished in business starts with very great advantages over 
others. He has from his youth up special facilities for 



HEREDITARY BUSINESSES 299 

obtaining the knowledge and developing the faculties that are iv, xn, 6. 
required in the management of his father’s business : he learns 
quietly and almost unconsciously about men and manners in 
his father’s trade and in those from which that trade buys 
and to which it sells; he gets to know the relative import- 
ance and the real significance of the various problems and 
anxieties which occupy his father’s mind: and he acquires a 
technical knowledge of the processes and the machinery of 
the trade^. Some of what he learns will be applicable only 
to his father’s trade ; but the greater part will be serviceable 
in any trade that is in any way allied with that; while 
those general faculties of judgment and resource, of enter- 
prise and caution, of firmness and courtesy, which are trained 
by association with those who control the larger issues of 
any one trade, will go a long way towards fitting him for 
managing almost any other trade. Further, the sons of 
successful business men start with more material capital 
than almost anyone else except those who by nurture and 
education are likely to be disinclined for business and 
unfitted for it: and if they continue their fathers’ work, 
they have also the vantage ground of established trade 
connections. 

It would therefore at first sight seem likely that business But 
men should constitute a sort of caste; dividing out among 
their sons the chief posts of command, and founding 
hereditary dynasties, which should rule certain branches of 
trade for many generations together. But the actual state abilities 
of things is very different. For when a man has got together are not 
a great business, his descendants often fail, in spite of their fnhe^r^ted; 
great advantages, to develop the high abilities and the 
special turn of mind and temperament required for carrying 
it on with equal success. He himself was probably brought 
up by parents of strong earnest character; and was educated 
by their personal influence and by struggle with difficulties 
in early life. But his children, at all events if they were 

» We have already noticed how almost the only perfect apprenticeships of 
modem times are those of the sons of manufacturers, who practise almost every 
important operation that is carried on in the works sufficiently to be able in after 
years to enter into the difficulties of all their employees and form a fair judgment 
on their work. 



300 


BUSINESS MANAGEMENT 


rv, xn, 7. 


and after a 
time new 
blood must 
be brought 
in bv some 
method. 


The 

method of 
private 
partner- 
ship. 


born after he became rich, and in any case his grandchildren, 
are perhaps left a good deal to the care of domestic servants 
who are not of the same strong fibre as the parents by whose 
influence he was educated. And while his highest ambition 
was probably success in business, they are likely to be at 
least equally anxious for social or academic distinction^. 

For a time indeed all may go well. His sons find a 
firmly established trade, connection, and what is perhaps 
even more important, a well-chosen staff of subordinates 
with a generous interest in the business. By mere assiduity 
and caution, availing themselves of the traditions of the firm, 
they may hold together for a long time. But when a full 
generation has passed, when the old traditions are no longer 
a safe guide, and when the bonds that held together the 
old staff have been dissolved, then the business almost 
invariably falls to pieces unless it is practically handed over 
to the management of new men who have meanwhile risen 
to partnership in the firm. 

But in most cases his descendants arrive at this result by 
a shorter route. They prefer an abundant income coming to 
them without effort on their part, to one which though twice 
as large could be earned only by incessant toil and anxiety; 
and they sell the business to private persons or a joint-stock 
company; or they become sleeping partners in it; that is 
sharing in its risks and in its profits, but not taking part in 
its management: in either case the active control over their 
capital falls chiefly into the hands of new men. 

§ 7. The oldest and simplest plan for renovating the 
energies of a business is that of taking into partnership some 
of its ablest employees. The autocratic owner and manager 
of a large manufacturing or trading concern finds that, as 
years go on, he has to delegate more and more responsibility 


* Until lately there has ever been in England a kind of antagonism between 
academic studies and business. This is now being diminished by the broadening 
of the spirit of our great imiversities, and by the growth of colleges in our chief 
business centres. The sons of business men when sent to the universities do 
not learn to despise their fathers’ trades as often as they used to do even a 
generation ago. Many of them indeed are drawn away from business by the 
desire to extend the boundaries of knowledge. But the higher forms of mental 
activity, those which are constructive and not merely critical, tend to promote u 
just appreciation of the nobility of business work rightly done. 



PRIVATE PARTNERSHIPS 


301 


to his chief subordinates; partly because the work to be iv, xn. s. 
done is growing heavier, and partly because his own strength ”” 
is becoming less than it was. He stilJ exercises a supreme 
control, but much must depend on their energy and probity: 
so, if his sons are not old enough, or for any other reason are 
not ready to take part of the burden off his shoulders, he 
decides to take one of his trusted assistants into partnership: 
he thus lightens his own labours, at the same time that he 
secures that the task of his life will be carried on by those 
whose habits he has moulded, and for whom he has perhaps 
acquired something like a fatherly affection^. 

But there are now, and there always have been, private 
partnerships on more equal terms, two or more people of 
about equal wealth and ability combining their resources 
for a large and difficult undertaking. In such cases there is 
often a distinct partition of the work of management: in 
manufactures for instance one partner will sometimes give 
himself almost exclusively to the work of buying raw material 
and selling the finished product, while the other is respon- 
sible for the management of the factory: and in a trading 
establishment one partner will control the wholesale and the 
other the retail department. In these and other ways private 
partnership is capable of adapting itself to a great variety 
of problems: it is very strong and very elastic; it has 
played a great part in the past, and it is full of vitality 
now. 

§ 8 . But from the end of the Middle Ages to the present The 
time there has been in some classes of trades a movement joint-stock 
towards the substitution of public joint-stock companies, 
the shares of which can be sold to anybody in the open 
market, for private companies, the shares in which are not 
transferable without the leave of all concerned. The effect 
of this change has been to induce people, many of whom 

* Much of the happiest romance of life, much that is most pleasant to dwell 
upon in the social history of England from the Middle Ages up to our own day is 
connected with the story of private partnerships of this class. Many a youth has 
been stimulated to a brave career by the influence of ballads and tcdes which 
narrate the difliculties and the ultimate triumph of the faithful apprentice, who 
has at length been taken into partnership, perhaps on marrying his employer’s 
daughter. There are no influences on national character more far-reaching than 
those which thus give shape to the aims of aspiring youth. 



302 


BUSINESS MANAGEMENT 


IV, xn, 9. 


The share- 
holders 
undertake 
the risks; 


the 

Directors 
control the 
Managers; 


who super- 
intend the 
details. 


Those who 
undertake 
the risks 


have no special knowledge of trade, to give their capital into 
the hands of others employed by them: and there has thus 
arisen a new distribution of the various parts of the work of 
business management. 

The ultimate undertakers of the risks incurred by a joint- 
stock company are the shareholders; but as a rule they do 
not take much active part in engineering the business and 
controlling its general policy; and they take no part in 
superintending its details. After the business has once got 
out of the hands of its original promoters, the control of it is 
left chiefly in the hands of Directors; who, if the company is 
a very large one, probably own but a very small proportion of 
its shares, while the greater part of them have not much 
technical knowledge of the work to be done. They are not 
generally expected to give their whole time to it; but they 
are supposed to bring wide general knowledge and sound 
judgment to bear on the broader problems of its policy; and 
at the same time to make sure that the “Managers’’ of the 
company are doing their work thoroughly^. To the Managers 
and their assistants is left a great part of the work of engi- 
neering the business, and the whole of the work of superin- 
tending it: but they are not required to bring any capital 
into it ; and they are supposed to be promoted from the lower 
ranks to the higher according to their zeal and ability. Since 
the joint-stock companies in the United Kingdom do a very 
great part of the business of all kinds that is done in the 
country, they offer very large opportunities to men with 
natural talents for business management, who have not 
inherited any material capital, or any business connection. 

§ 9. Joint-stock companies have great elasticity and can 
expand themselves without limit when the work to which 


‘ Bagehot delighted to argue (see for instance English ConstitiUion, ch. vii.) 
that a Cabinet Minister often derives some advantage from his want of technical 
knowledge of the business of his Department. For he can get information on 
matters of detail from the Permanent Secretary and other officials who are under 
his authority; and, while he is not likely to set his judgment against theirs on 
matters where their knowledge gives them the advantage, his unprejudiced 
common sense may well overrule the traditions of officialism in broad questions 
of public policy: and in like manner the interests of a company may possibly 
sometimes be most advanced by those Directors who have the least technical 
knowledge of the details of its business. 



JOINT^TOGK COMPANIES 


303 


they have set themselves ofEers a wide scope; and they are iv, rn,9. 
gaining ground in nearly all directions. But they have one cann^ 
great source of weakness in the absence of any adequate 
knowledge of the business on the part of the shareholders 
who undertake its chief risks. It is true that the head of a business 
large private firm undertakes the chief risks of the business, managed, 
while he entrusts many of its details to others; but his posi- 
tion is secured by his power of forming a direct judgment as 
to whether his subordinates serve his interests faithfully and 
discreetly. If those to whom he has entrusted the buying or 
selling of goods for him take commissions from those with 
whom they deal, he is in a position to discover and punish 
the fraud. If they show favouritism and promote incompe- 
tent relations or friends of their own, or if they themselves 
become idle and shirk their work, or even if they do not 
fulfil the promise of exceptional ability which induced him 
to give them their first lift, he can discover what is going 
wrong and set it right. 

But in all these matters the great body of the share- The 

holders of a joint-stock company are, save in a few excep- rendered 

tional instances, almost powerless; though a few of the larger 

shareholders often exert themselves to find out what is going 

on; and are thus able to exercise an effective and wise con- business 

. , _ . _ . morality. 

trol over the general management of the business. It is 
a strong proof of the marvellous growth in recent times of a 
spirit of honesty and uprightness in commercial matters, that 
the leading officers of great public companies yield as little as 
they do to the vast temptations to fraud which lie in their 
way. If they showed an eagerness to avail themselves of 
opportunities for wrong-doing at all approaching that of 
which we read in the commercial history of earlier civili- 
zation, their wrong uses of the trusts imposed in them would 
have been on so great a scale as to prevent the development 
of this democratic form of business. There is every reason 
to hope that the progress of trade morality will continue, 
aided in the future as it has been in the past, by a diminu- 
tion of trade secrecy and by increased publicity in every 
form; and thus collective and democratic forms of business 
management may be able to extend themselves safely in 



304 


BUSINESS MANAGEMENT 


IV, in, 9. 


Govern- 
ment un- 
dertakings. 


The social 
perils of 
bureau- 
cratic 
methods. 


Trusts and 
cartels. 


many directions in which they have hitherto failed, and 
may far exceed the great services they already render in 
opening a large career to those who have no advantages of 
birth. 

The same may be said of the undertakings of Govern- 
ments imperial and local : they also may have a great future 
before them, but up to the present time the tax-payer who 
undertakes the ultimate risks has not generally succeeded in 
exercising an efficient control over the businesses, and in 
securing officers who will do their work with as much energy 
and enterprise as is shown in private establishments. 

The problems of large joint-stock company administration, 
as well as of Governmental business, involve however many 
complex issues into which we cannot enter here. They are 
urgent, because very large businesses have recently increased 
fast, though perhaps not quite so fast as is commonly supposed. 
The change has been brought about chiefly by the develop- 
ment of processes and methods in manufacture and mining, 
in transport and banking, which are beyond the reach of any 
but very large capitals; and by the increase in the scope 
and functions of markets, and in the technical facilities for 
handling large masses of goods. The democratic element in 
Governmental enterprise was at first almost wholly vivifying : 
but experience shows creative ideas and experiments in 
business technique, and in business organization, to be 
very rare in Governmental undertakings, and not very 
common in private enterprises which have drifted towards 
bureaucratic methods as the result of their great age and 
large size. A new danger is thus threatened by the narrow- 
ing of the field of industry which is open to the vigorous 
initiative of smaller businesses. 

Production on the largest scale of all is to be seen chiefly 
in the United States, where giant businesses, with some 
touch of monopoly, are commonly called “trusts.” Some of 
these trusts have grown from a single root. But most of them 
have been developed by the amalgamation of many indepen- 
dent businesses; and a first step towards this combination 
was generally an association, or “cartel” to use a German 
term, of a rather loose kind. 



CO-OPERATIVE SOCIETIES 


306 


§10. The system of co-operation aims at avoiding the iv,xii,io. 
evils of these two methods of business management. Inco- 
that ideal form of co-operative society, for which many still ^"^ation 
fondly hope, but which as yet has been scantily realized in 
practice, a part or the whole of those shareholders who under- 
take the risks of the business are themselves employed by it. 

The employees, whether they contribute towards the material 
capital of the business or not, have a share in its profits, and 
some power of voting at the general meetings at which the 
broad lines of its policy are laid down, and the officers 
appointed who are to carry that policy into effect. They might 
are thus the employers and masters of their own managers the chief 
and foremen; they have fairly good means of judging whether ^o^nt-^ock 
the higher work of engineering the business is conducted 
honestly and efficiently, and they have the best possible 
opportunities for detecting any laxity or incompetence in its 
detailed administration. And lastly they render unnecessary 
some of the minor work of superintendence that is required 
in other establishments ; for their own pecuniary interests and 
the pride they take in the success of their own business 
make each of them averse to any shirking of work either by 
himself or by his fellow- workmen. 

But unfortunately the system has very great difficulties it has 
of its own. For human nature being what it is, the employees 
themselves are not always the best possible masters of their 
own foremen and managers; jealousies and frettings at"^®“^ 
reproof are apt to act like sand, that has got mixed with the 
oil in the bearings of a great and complex machinery. The 
hardest work of business management is generally that which 
makes the least outward show; those who work with their 
hands are apt to underrate^ the intensity of the strain 
involved in the highest work of engineering the business, and 
to grudge its being paid for at anything like as high a rate 
as it could earn elsewhere. And in fact the managers of a 
co-operative society seldom have the alertness, the inventive- 
ness and the ready versatility of the ablest of those men who 
have been selected by the struggle for survival, and who 
have been trained by the free and unfettered responsi- 
bility of private business. Partly for these reasons the 



309 


IV,?W,10. 


but it may 
outgrow 
some of 
these. 


Profit- 

Sharing. 


BUSINESS MANAGEMENT 

co-operative system has seldom been carried out in its entirety ; 
and its partial application has not yet attained a conspicuous 
success except in retailing commodities consumed by working 
men. But within the last few years more hopeful signs have 
appeared of the success of bond fide productive associations, 
or “co-partnerships.” 

Those working men indeed whose tempers are strongly 
individualistic, and whose minds are concentrated almost 
wholly on their own affairs, will perhaps always find their 
quickest and most congenial path to material success by 
commencing business as small independent “undertakers,” or 
by working their way upwards in a private firm or a public 
company. But co-operation has a special charm for those in 
whose tempers the social element is stronger, and who desire 
not to separate themselves from their old comrades, but to 
work among them as their leaders. Its aspirations may in 
some respects be higher than its practice; but it undoubtedly 
does rest in a great measure on ethical motives. The true 
co-operator combines a keen business intellect with a spirit 
full of an earnest faith; and some co-operative societies have 
been served excellently by men of great genius both mentally 
and morally — men who for the sake of the co-operative faith 
that is in them, have worked with great ability and energy, 
and with perfect uprightness, being all the time content with 
lower pay than they could have got as business managers on 
their own account or for a private firm. Men of this stamp 
are more common among the officers of co-operative societies 
than in other occupations; and though they are not very 
common even there, yet it may be hoped that the diffusion 
of a better knowledge of the true principles of co-operation, 
and the increase of general education, are every day fitting a 
larger number of co-operators for the complex problems of 
business management. ^ 

Meanwhile many partial applications of the co-operative 
principle are being tried under various conditions, each of 
which presents some new aspect of business management. 
Thus under the scheme of Profit-Sharing, a private firm while 
retaining the unfettered management of its business, pays its 
employees the full market rate of wages, whether by Time 



CO-OPERATIVE SOCIETIES 


807 


or Piece-work, and agrees in addition to divide among them iv, in, ii 
a certain share of any profits that may be made above a 
fixed minimum; it being hoped that the firm will find a 
material as well as a moral reward in the diminution of 
friction, in the increased willingness of its employees to 
go out of their way to do little things that may be of great 
benefit comparatively to the firm, and lastly in attracting 
to itself workers of more than average ability and in- 
dustry^. 

Another partially co-operative scheme is that of some Partial Co- 
Oldham cotton-mills: they are really joint-stock companies; 
but among their shareholders are many working men who 
have a special knowledge of the trade, though they often 
prefer not to be employed in the mills of which they are part 
owners. And another is that of the Productive establish- 
ments, owned by the main body of co-operative stores, through 
their agents, the co-operative Wholesale Societies. In the 
Scotch Wholesale, but not in the English, the workers, as 
such, have some share in the management and in the profits 
of the works. 

At a later stage we shall have to study all those various 
co-operative and semi-co-operative forms of business more in 
detail, and to inquire into the causes of their success or 
failure in different classes of business, wholesale and retail, 
agricultural, manufacturing and trading. But we must not 
pursue this inquiry further now. Enough has been said to Hopes for 
show that the world is only just beginning to be ready for 
the higher work of the co-operative movement; and that its 
many different forms may therefore be reasonably expected 
to attain a larger success in the future than in the past; 
and to offer excellent opportunities for working men to 
practise themselves in the work of business management, to 
grow into the trust and confidence of others, and gradually 
rise to posts in which their business abilities will find 
scope. 

§ 11. In speaking of the difficulty that a working man 
has in rising to a post in which he can turn his business working 

* Compare Schloss, Methods of Industrial Iiffmuneration\ and Gilman, A 
dividend to labour. 



308 


BUSINESS MANAGEMENT 


IV, XII, 11. 

man is not 
hindered 
as much 
as at first 
sight 
appears, 
by his 
want of 
capital; 


for the 

loan-fund 

is 

increasing 
in volume 
and in 
eagerness 
for employ- 
ment. 


Ho is 
hindered 
much 
by the 
growing 
complexity 
of busi- 
ness. 


ability to full account, the chief stress is commonly laid upon 
his want of capital: but this is not always his chief difficulty. 
For instance the co-operative distributive societies have 
accumulated a vast capital, on which they find it difficult to 
get a good rate of interest; and which they would be rejoiced 
to lend to any set of working men who could show that they 
had the capacity for dealing with difficult business problems. 
Co-operators who have firstly a high order of business ability 
and probity, and secondly the ‘'personal capital” of a great 
reputation among their fellows for these qualities, will have 
no difficulty in getting command of enough material capital 
for a considerable undertaking: the real difficulty is to con- 
vince a sufficient number of those around them that they 
have these rare qualities. And the case is not very different 
when an individual endeavours to obtain from the ordinary 
sources the loan of the capital required to start him in 
business. 

It is true that in almost every business there is a constant 
increase in the amount of capital required to make a fair 
start; but there is a much more rapid increase in the amount 
of capital which is owned by people who do not want to use 
it themselves, and are so eager to lend it out that they will 
accept a constantly lower and lower rate of interest for it. 
Much of this capital passes into the hands of bankers who 
promptly lend it to anyone of whose business ability and 
honesty they are convinced. To say nothing of the credit 
that can be got in many businesses from those who supply 
the requisite raw material or stock in trade, the opportunities 
for direct borrowing are now so great that a moderate increase 
in the amount of capital required for a start in business is no 
very serious obstacle in the way of a person who has once 
got over the initial difficulty of earning a reputation for being 
likely to use it well. 

But perhaps a greater though less conspicuous hindrance 
to the rise of the working man is the growing complexity 
of business. The head of a business has now to think of 
many things about which he never used to trouble himself 
in earlier days; and these are just the kind of difficulties 
for which the training of the workshop affords the least 



THE WORKING MAN’S OPPORTUNITIES OF RISING 


309 


preparation. Against this must be set the rapid improvement iv, xn, ii. 
of the education of the working man not only at school, but 
what is more important, in after life by newspapers, and from 
the work of co-operative societies and trades-unions, and in 
other ways. 

About three-fourths of the whole population of England But he 
belong to the wage-earning classes; and at all events when^ercome 
they are well fed, properly housed and educated, they have their difficulties 
fair share of that nervous strength which is the raw material 
of business ability. Without going out of their way they are 
all consciously or unconsciously competitors for posts of busi- 
ness command. The ordinary workman if he shows ability 
generally becomes a foreman, from that he may rise to be a 
manager, and to be taken into partnership with his employer. 

Or having saved a little of his own he may start one of those 
small shops which still can hold their own in a working man’s 
quarter, stock it chiefly on credit, and let his wife attend to 
it by day, while he gives his evenings to it. In these or in 
other ways he may increase his capital till he can start a 
small workshop, or factory. Once having made a good begin- 
ning he will find the banks eager to give him generous credit. 

He must have time; and since he is not likely to start in 
business till after middle age he must have a long as well as 
a strong life; but if he has this and has also ‘'patience, 
genius and good fortune” he is pretty sure to command a 
goodly capital before he dies^. In a factory those who work 
with their hands have better opportunities of rising to posts 
of command than the book-keepers and many others to whom 

* The Germans say that success in business requires “Geld, Geduld, Genie 
und Gliick.” The chances that a working man has of rising vary somewhat with 
the nature of the work, being greatest in those trades in which a careful attention 
to details counts for most, and a wide knowledge, whether of science or of the 
world movements of speculation, counts for least. Thus for instance “thrift and 
the knowledge of practical details’* are the most important elements of success in 
the ordinary work of the pottery trade; and in consequence most of those who 
have done well in it “have risen from the bench like Josiah Wedgwood” (see 
G. Wedgwood’s evidence before the Commission on Technical Education); and a 
similar statement might be made about many of the Sheffield trades. But some 
of the working classes develop a great faculty for taking speculative risks; and if 
the knowledge of facts by which successful speculation must be guided, comes 
within their reach, they will often push their way through competitors who have 
started above them. Some of the most successful wholesale dealers in perishable 
commodities such as fish and fruit have bogim life as market porters. 



310 


IV, xn, 11, 


Tbe rise 
may take 
two gene- 
rations 
instead 
of one. 


But that 
is not an 
unmixed 
evil; 


if the 
danger 
of mere 
office work 
can be 
avoided. 


BUSINESS MANAGEMENT 

social tradition has assigned a higher place. But in trading 
concerns it is otherwise; what manual work is done in them 
has as a rule no educating character, while the experience of 
the office is better adapted for preparing a man to manage a 
commercial than a manufacturing business. 

There is then on the whole a broad movement from below 
upwards. Perhaps not so many as formerly rise at once 
from the position of working men to that of employers: but 
there are more who get on sufficiently far to give their sons a 
good chance of attaining to the highest posts. The complete 
rise is not so very often accomplished in* one generation; it 
is more often spread over two; but the total volume of the 
movement upwards is probably greater than it has ever been. 
And perhaps it is better for society as a whole that the rise 
should be distributed over two generations. The workmen 
who at the beginning of the last century rose in such large 
numbers to become employers were seldom fit for posts of 
command: they were too often harsh and tyrannical; they 
lost their self-control, and were neither truly noble nor truly 
happy; while their children were often haughty, extravagant, 
and self-indulgent, squandering their wealth on low and 
vulgar amusements, having the worst faults of the older 
aristocracy without their virtues. The foreman or superin- 
tendent who has still to obey as well as to command, but 
who is rising and sees his children likely to rise further, is 
in some ways more to be envied than the small master. His 
success is less conspicuous, but his work is often higher and 
more important for the world, while his character is more 
gentle and refined and not less strong. His children are 
well-trained; and if they get wealth, they are likely to make 
a fairly good use of it. 

It must however be admitted that the rapid extension of 
vast businesses, and especially of joint-stock companies in 
many branches of industry, is tending to make the able and 
thrifty workman, with high ambitions for his sons, seek to 
put them to office work. There they are in danger of losing 
the physical vigour and the force of character which attaches 
to constructive work with the hands, and to become common- 
place members of the lower middle classes. But, if they can 



ADJUSTMENT OF OAHTAL TO BUSCJESS ABIUTY 811 

keep their force unimpaired, they are likely to become leaders iv,xn,i 2 . 
in the world, though not generally in their father’s industry; 
and therefore without the benefit of specially appropriate 
traditions and aptitude. 

§ 12. When a man of great ability is once at the head of An aMe 

• 1)1131 T16SS 

an independent business, whatever be the route hy which he man 
has got there, he will with moderate good fortune soon be increases 
able to show such evidence of his power of turning capital to 
good account as to enable him to borrow in one way or another command, 
almost any amount that he may need. Making good profits 
he adds to his own capital, and this extra capital of his own 
is a material security for further borrowings; while the fact 
that he has made it himself tends to make lenders less careful 
to insist on a full security for their loans. Of course fortune 
tells for much in business: a very able man may find things 
going against him; the fact that he is losing money may 
diminish his power of borrowing. If he is working partly 
on borrowed capital, it may even make those who have lent 
it refuse to renew their loans, and may thus cause him to 
succumb to what would have been but a passing misfortune, 
if he had been using no capital but his own^ : and in fighting 
his way upwards he may have a chequered life full of great 
anxieties, and even misfortunes. But he can show his ability 
in misfortune as well as in success: human nature is sanguine; 
and it is notorious that men are abundantly willing to lend 
to those who have passed through commercial disaster 
without loss to their business reputation. Thus, in spite of 
vicissitudes, the able business man generally finds that in 
the long run the capital at his command grows in proportion 
to his ability. 

Meanwhile, as we have seen, he, who with small ability 
is in command of a large capital, speedily loses it: he maynot^reat 
perhaps be one who could and would have managed a small abfiity^ 

^ The danger of not being able to renew his borrowings just at the time w^en 
he wattta them most, puts him at a disadvantage relativoly to those who use only 
their own capital, much greater than is represented by the mere interest on his 
borrowings: and, when we come to that part of the doctrine of distribution which 
deeds with earnings Of management, we shedl fittd that, for this athdnjg other 
reasons, profits are something more than interest in addition to net earnings of 
management, t.e. those earnings which are properly to be ascribed to the abilities 
of business men. 



312 


BUSINESS MANAGEMENT 


IV, XII, 12. 

loses his 
capital 
the more 
rapidly the 
larger his 
business is. 


These two 
forces tend 
to adjust 
the capital 
to the 
ability 
required to 
use it well. 


business with credit, and left it stronger than he had found 
it: but if he has not the genius for dealing with great pro- 
blems, the larger it is the more speedily will he break it up. 
For as a rule a large business can be kept going only by 
transactions which, after allowing for ordinary risks, leave but 
a very small percentage of gain. A small profit on a large 
turn-over quickly made, will yield a rich income to able men: 
and in those businesses which are of such a nature as to give 
scope to very large capitals, competition generally cuts the 
rate of profits on the turn-over very fine. A village trader 
may make five per cent, less profits on his turn-over than his 
abler rival, and yet be able to hold his head above water. 
But in those large manufacturing and trading businesses in 
which there is a quick return and a straightforward routine, 
the whole profits on the turn-over are often so very small that 
a person who falls behind his rivals by even a small percentage 
loses a large sum at every turn-over; while in those large 
businesses which are difficult and do not rely on routine, and 
which afford high profits on the turn-over to really able 
management, there are no profits at all to be got by anyone 
who attempts the task with only ordinary ability. 

These two sets of forces, the one increasing the capital 
at the command of able men, and the other destroying the 
capital that is in the hands of weaker men, bring about the 
result that there is a far more close correspondence between 
the ability of business men and the size of the businesses 
which they own than at first sight would appear probable. 
And when to this fact we add all the many routes, which we 
have already discussed, by which a man of great natural 
business ability can work his way up high in some private 
firm or public company, we may conclude that wherever there 
is work on a large scale to be done in such a country as 
England, the ability and the capital required for it are pretty 
sure to be speedily forthcoming. 

Further, just as industrial skill and ability are getting 
every day to depend more and more on the broad faculties 
of judgment, promptness, resource, carefulness and steadfast- 
ness of purpose — faculties which are not specialized to any 
one trade, but which are more or less useful in all — so it is 



ADJUSTMENT OP CAPITAL TO BUSINESS ABILITY 


313 


with regard to business ability. In fact business ability iv,xii,i2. 
consists more of these non-specialized faculties than do 
industrial skill and ability in the lower grades: and the 
higher the grade of business ability the more various are its 
applications. 


Since then business ability in command of capital moves 
with great ease horizontally from a trade which is over- 
crowded to one which offers good openings for it: and since 
it moves with great ease vertically, the abler men rising 
to the higher posts in their own trade, we see, even at this 
early stage of our inquiry, some good reasons for believing 
that in modern England the supply of business ability in 


Business 
ability in 
command 
of capital 
hasafairly 
defined 
supply 
price in 
such a 
country as 
England. 


command of capital accommodates itself, as a general rule. 


to the demand for it; and thus has a fairly defined supply 


price. 

Finally, we may regard this supply price of business 
ability in command of capital as composed of three elements. 

The first is the supply price of capital; the second is the 
supply price of business ability and energy; and the third 
is the supply price of that organization by which the 
appropriate business ability and the requisite capital are 
brought together. We have called the price of the first of Net and 
these three elements interest ; we may call the price of the ^crmings 
second taken by itself net earnings of management, and that 
of the second and third, taken together, gross earnings of 
management. 



CHAPTER XIIL 

CONCLUSION. CORRELATION OP THE TENDENCIES TO 
INCREASING AND TO DIMINISHING RETURN. 

IV, xm, 1. §1. At the beginning of this Book we saw how the 

The extra return of raw produce which nature affords to an in- 
[n^wh^ch creased application of capital and labour, other things being 
chapters of tends in the long run to diminish. In the remainder 

this Book of the Book and especially in the last four chapters we have 
the earlier, looked at the other side of the shield, and seen how man’s 
power of productive work increases with the volume of the 
work that he does. Considering first the causes that govern 
the supply of labour, we saw how every increase in the 
physical, mental and moral vigour of a people makes them 
more likely, other things being equal, to rear to adult age 
a large number of vigorous children. Turning next to the 
growth of wealth, we observed how every increase of wealth 
tends in many ways to make a greater increase more easy 
than before. And lastly we saw how every increase of wealth 
and every increase in the numbers and intelligence of the 
people increased the facilities for a highly developed industrial 
organization, which in its turn adds much to the collective 
efficiency of capital and labour. 

A sum- Looking more closely at the economies arising from an 

Uie^iateT increase in the scale of production of any kind of goods, we 
this^Bo^k.^ found that they fell into two classes — those dependent on the 
general development of the industry, and those dependent on 
the resources of the individual houses of business engaged 
in it and the efficiency of their management; that is, into 
external and internal economies. 



SUMMARY 


315 


We saw how these latter economies are liable to constant 
fluctuations so far as any particular house is concerned. An sum^ry. 
able man, assisted perhaps by some strokes of good fortune, 
gets a firm footing in the trade, he works hard and liv^s 
sparely, his own capital grows fast, and the credit that 
enables him to borrow more capital grows still faster; he 
collects around him subordinates of more than ordinary zeal 
and ability; as his business increases they rise with him, 
they trust him and he trusts them, each of them devotes 
himself with energy to just that work for which he is specially 
fitted, so that no high ability is wasted on easy work, and no 
difficult work is entrusted to unskilful hands. Corresponding 
to this steadily increasing economy of skill, the growth of 
his business brings with it similar economies of specialized 
machines and plant of all kinds; every improved process is 
quickly adopted and made the basis of further improvements; 
success brings credit and credit brings success; credit and 
success help to retain old customers and to bring new ones; 
the increase of his trade gives him great advantages in 
buying; his goods advertise one another, and thus diminish 
his difficulty in finding a vent for them. The increase in the 
scale of his business increases rapidly the advantages which 
he has over his competitors, and lowers the price at which he 
can afford to sell. This process may go on as long as his 
energy and enterprise, his inventive and organizing power 
retain their full strength and freshness, and so long as the 
risks which are inseparable from business do not cause him 
exceptional losses; and if it could endure for a hundred years, 
he and one or two others like him would divide between them 
the whole of that branch of industry in which he is engaged. 

The large scale of their production would put great economies 
within their reach; and provided they competed to their 
utmost with one another, the public would derive the chief 
benefit of these economies, and the price of the commodity 
would fall very low. 

But here we may read a lesson from the young trees of 
the forest as they struggle upwards through the benumbing 
shade of their older rivals. Many succumb on the way, and 
a few only survive ; those few become stronger with every year. 



316 


INCREASING AND DIMINISHING RETURNS 


IV, XIII, 1. 
Summary. 


they get a larger share of light and air with every increase of 
their height, and at last in their turn they tower above their 
neighbours, and seem as though they would grow on for ever, 
and for ever become stronger as they grow. But they do not. 
One tree will last longer in full vigour and attain a greater 
size than another; but sooner or later age tells on them 
all. Though the taller ones have a better access to light 
and air than their rivals, they gradually lose vitality; and 
one after another they give place to others, which, though of 
less material strength, have on their side the vigour of youth. 

And as with the growth of trees, so was it with the growth 
of businesses as a general rule before the great recent 
development of vast joint-stock companies, which often 
stagnate, but do not readily die. Now that rule is far from 
universal, but it still holds in many industries and trades. 
Nature still presses on the private business by limiting the 
length of the life of its original founders, and by limiting 
even more narrowly that part of their lives in which their 
faculties retain full vigour. And so, after a while, the 
guidance of the business- falls into the hands of people with 
less energy and less creative genius, if not with less active 
interest in its prosperity. If it is turned into a joint-stock 
company, it may retain the advantages of division of labour, 
of specialized skill and machinery: it may even increase them 
by a further increase of its capital; and under favourable 
conditions it may secure a permanent and prominent place 
in the work of production. But it is likely to have lost so 
much of its elasticity and progressive force, that the advan- 
tages are no longer exclusively on its side in its competition 
with younger and smaller rivals. 

When therefore we are considering the broad results 
which the growth of wealth and population exert on the 
economies of production, the general character of our con- 
clusions is not very much affected by the facts that many 
of these economies depend directly on the size of the indi- 
vidual establishments engaged in the production, and that 
in almost every trade there is a constant rise and fall of large 
businesses, at any one moment sony^e firms being in the 
ascending phase and others in the descending. For in times 



SUMMARY 


317 


of average prosperity decay in one direction is sure to be iv, mi, 2 . 
more than balanced by growth in another. Sum^y. 

Meanwhile an increase in the aggregate scale of produc- 
tion of course increases those economies, which do not directly 
depend on the size of individual houses of business. The 
most important of these result from the growth of correlated 
branches of industry which mutually assist one another, 
perhaps being concentrated in the same localities, but any- 
how availing themselves of the modern facilities for com- 
munication offered by steam transport, by the telegraph and 
by the printing-press. The economies arising from such 
sources as this, which are accessible to any branch of pro- 
duction, do not depend exclusively upon its own growth: 
but yet they are sure to grow rapidly and steadily with that 
growth; and they are sure to dwindle in some, though not in 
all respects, if it decays. 

§ 2. These results will be of great importance when we Forecast 
come to discuss the causes which govern the supply price of g^ud^of 
a commodity. We shall have to analyse carefully the normal 
cost of producing a commodity, relatively to a given aggre- 
gate volume of production; and for this purpose we shall ^m. 
have to study the expenses of a representative producer for 
that aggregate volume. On the one hand we shall not want 
to select some new producer just struggling into business, 
who works under many disadvantages, and has to be content 
for a time with little or no profits, but who is satisfied with 
the fact that he is establishing a connection and taking the 
first steps towards building up a successful business; nor on 
the other hand shall we want to take a firm which by 
exceptionally long-sustained ability and good fortune has got 
together a vast business, and huge well-ordered workshops 
that give it a superiority over almost all its rivals. But our 
representative firm must be one which has had a fairly long 
life, and fair success, which is managed with normal ability, 
and which has normal access to the economies, external 
and internal, which belong to that aggregate volume of 
production; account being taken of the class of goods pro- 
duced, the conditions of marketing them and the economic 
environment generally. 



318 

IV, xm. 2, 


Laws of 
increasing 
return f 


and of 
constant 
return » 


INCREASING AND DIMINISHING RETURNS 

Tlius a representative firm is in a sense an average firm. 
But there are many ways in which the term ‘‘average” might 
be interpreted in connection with a business. And a Repre- 
sentative firm is that particular sort of average firm, at 
which we need to look in order to see how far the economies, 
internal and external, of production on a large scale have 
extended generally in the industry and country in question. 
We cannot see this by looking at one or two firms taken 
at random: but we can see it fairly well by selecting, 
after a broad survey, a firm, whether in private or joint- 
stock management (or better still, more than one), that 
represents, to the best of our judgment, this particular 
average. 

The general argument of the present Book shows that an 
increase in the aggregate volume of production of anything 
will generally increase the size, and therefore the internal 
economies possessed by such a representative firm; that it 
will always increase the external economies to which the 
firm has access; and thus will enable it to manufacture 
at a less proportionate cost of labour and sacrifice than 
before. 

In other words, we say broadly that while the part which 
nature plays in production shows a tendency to diminishing 
return, the part which man plays shows a tendency to in- 
creasing return. The law of increasing return may be worded 
thus: — An increase of labour and capital leads generally to 
improved organization, which increases the efficiency of the 
work of labour and capital. 

Therefore in those industries which are not engaged in 
raising raw produce an increase of labour and capital generally 
gives a return increased more than in proportion; and further 
this improved organization tends to diminish or even override 
any increased resistance which nature may offer to raising 
increased amounts of raw produce. If the actions of the 
laws of increasing and diminishing return are balanced we 
have the law of constant return, and an increased produce 
is obtained by labour and sacrifice increased just in pro- 
portion. 

For the two tendencies towards increasing and diminishing 



THE STAKBARD IB SET BY REPRESENTATIVE FIRMS 


319 


return press constantly against one another. In the pro- iv, xm, 2. 
duction of wheat and wool, for instance, the latter tendency The 
has almost exclusive sway in an old country, which 
not import freely. In turning the wheat into flour, or the 
wool into blankets, an increase in the aggregate volume of increasing 
production brings some new economies, but not many; for diminish- 
the trades of grinding wheat and making blankets are already agaf^t 
on 80 great a scale that any new economies that they may another, 
attain are more likely to be the result of new inventions than 
of improved organization. In a country however in which 
the blanket trade is but slightly developed, these latter may 
be important; and then it may happen that an increase in 
the aggregate production of blankets diminishes the propor- 
tionate difficulty of manufacturing by just as much as it 
increases that of raising the raw material. In that case the 
actions of the laws of diminishing and of increasing return 
would just neutralize one another; and blankets would con- 
form to the law of constant return. But in most of the 
more delicate branches of manufacturing, where the cost of 
raw material counts for little, and in most of the modern 
transport industries the law of increasing return acts almost 
unopposed^. 

Increasing Return is a relation between a quantity of increasing 

«• 11 1 • p Return 18 a 

enort and sacrifice on the one hand, and a quantity of relation of 
product on the other. The quantities cannot be taken out 
exactly, because changing methods of production call for 
machinery, and for unskilled and skilled labour of new kinds 
and in new proportions. But, taking a broad view, we may 
perhaps say vaguely that the output of a certain amount of 
labour and capital in an industry has increased by perhaps 
a quarter or a third in the last twenty years. To measure 
outlay and output in terms of mcmey is a tempting, but a 
dangerous resource: for a comparison of money outlay with 

' In aa article on ‘•The variation of productive forces” in the Quarterly 
Journal of Economics 1902, Brolessoi Bullock suggests that the term ” Economy 
of Organization” shoakl be substituted for Increasing Return. He shovrs clearly 
that the forces which make for Increasing Return are not of the same'order as those 
thai make for Diminiahing Retmn: and there are undoubtedly cases in which it 
is better to emphasize this difference by^ describtng causes rather than results, and 
contrasting Economy oi Oigaaiaatioii with the Inelasticity of Nature’s response to 
intensive cultivation. 



320 


INCREASING AND DIMINISHING RETURNS 


IV, XIII, 3. money returns is apt to slide into an estimate of the rate of 
profit on capital^. 

A rapid § 3. We may now sum up provisionally the relations of 
pop^atron industrial expansion to social wellbeing. A rapid growth 
Imder some population has often been accompanied by unhealthy and 
conditions, enervating habits of life in overcrowded towns. And some- 
times it has started badly, outrunning the material resources 
of the people, causing them with imperfect appliances to 
make excessive demands on the soil; and so to call forth the 
stern action of the law of diminishing return as regards raw 
produce, without having the power of minimizing its effects. 
Having thus begun with poverty, an increase in numbers 
may go on to its too frequent consequences in that weakness 
of character which unfits a people for developing a highly 
organized industry. 

under°*^ These are serious perils: but yet it remains true that the 
others. collective efficiency of a people with a given average of 
individual strength and energy may increase more than in 
proportion to their numbers. If they can for a time escape 
from the pressure of the law of diminishing return by im- 
porting food and other raw produce on easy terms; if their 
wealth is not consumed in great wars, and increases at least 
as fast as their numbers; and if they avoid habits of life that 
would enfeeble them; then every increase in their numbers 
is likely /or the time to be accompanied by a more than pro- 
portionate increase in their power of obtaining material 
goods. For it enables them to secure the many various 
economies of specialized skill and specialized machinery, of 
localized industries and production on a large scale: it enables 
them to have increased facilities of communication of all 
kinds; while the very closeness of their neighbourhood 
diminishes the expense of time and effort involved in every 


^ There is no general rule that industries which yield increasing returns show 
also rising profits. No doubt a vigorous firm, which increases its scale of operations 
and obtains important {internal) economies which are peculiar to it, will show an 
increasing return and a rising rate of profit; because its increasing output will 
not materially affect the price of its produce. But profits tend to be low, as we 
shall see below (VI. viii. 1, 2), in such industries as plain weaving, because their 
vast scale has enabled organization in production and marketing to be carried so 
far as to be almost dominated by routine. 



PRESSURE OF POPULATION ON MEANS OF SUBSISTENCE 


321 


sort of traffic between them, and gives them new oppor- iv, xm, 3. 
tunities of getting social enjoyments and the comforts and 
luxuries of culture in every form. No doubt deduction must 
be made for the growing difficulty of finding solitude and 
quiet and even fresh air: but there is in most cases some 
balance of good^. 

Taking account of the fact that an increasing density of 
population generally brings with it access to new social 
enjoyments we may give a rather broader scope to this 
statement and say: — An increase of population accompanied 
by an equal increase in the material sources of enjoyment 
and aids to production is likely to lead to a more than pro- 
portionate increase in the aggregate income of enjoyment of 
all kinds ; provided firstly, an adequate supply of raw produce 
can be obtained without great difficulty, and secondly there 
is no such overcrowding as causes physical and moral vigour 
to be impaired by the want of fresh air and light and of 
healthy and joyous recreation for the young. 

The accumulated wealth of civilized countries is at present The 
growing faster than the population: and though it may be growth of 
true that the wealth per head would increase somewhat faster 
if the population did not increase quite so fast; yet as - 

matter of fact an increase of population is likely to continue guished 
to be accompanied by a more than proportionate increase of of the 
the material aids to production: and in England at J^h by 
present time, with easy access to abundant foreign supplies 
of raw material, an increase of population is accompanied by accom- 
a more than proportionate increase of the means of satisfying 
human wants other than the need for light, fresh air, etc. 

Much of this increase is however attributable not to the 
increase of industrial efficiency but to the increase of wealth 
by which it is accompanied : and therefore it does not neces- 
sarily benefit those who have no share in that wealth. And 


^ The Englishman Mill bursts into unwonted enthusiasm when speaking 
{Political Economy^ Book iv. ch. vi. § 2) of the pleasures of wandering alone in 
beautiful scenery: and many American writers give fervid descriptions of the 
growing richness of human life as the backwoodsman finds neighbours settling 
around him, as the backwoods settlement developes into a village, the village into 
a t6wn, and the town into a vast city. (See for instance Carey’s Principles of 
Social Science and Henry George’s Progress and Poverty,) 


M. 


11 



322 


INCEEASING AND DIMINISHING RETURNS 


IV, im, 3. further, England’s foreign supplies of raw produce may at 
any time be checked by changes in the trade regulations of 
other countries, and may be almost cut ofE by a great war, 
while the naval and military expenditure which would be 
necessary to make the country fairly secure against this last 
risk, would appreciably diminish the benefits that she derives 
from the action of the law of increasing return. 



BOOK V 


GENERAL RELATIONS OF DEMAND, 
SUPPLY AND VALUE. 

CHAPTER 1. 

INTRODUCTORY. ON MARKETS. 

§1. A BUSINESS firm grows and attains great strength, 
and afterwards perhaps stagnates and decays; and at the 
turning point there is a balancing or equilibrium of the 
forces of life and decay: the latter part of Book IV. has 
been chiefly occupied with such balancing of forces in the 
life and decay of a people, or of a method of industry or 
trading. And as we reach to the higher stages of our work, 
we shall need ever more and more to think of economic 
forces as resembling those which make a young man grow in 
strength, till he reaches his prime; after which he gradually 
becomes stiff and inactive, till at last he sinks to make room 
for other and more vigorous life. But to prepare the way 
for this advanced study we want first to look at a simpler 
balancing of forces which corresponds rather to the me- 
chanical equilibrium of a stone hanging by an elastic string, 
or of a number of balls resting against one another in a basin. 

We have now to examine the general relations of demand 
and supply; especially those which are connected with that 
adjustment of price, by which they are maintained in “equi- 
librium.’’ This term is in common use and may be used 
for the present without special explanation. But there are 
many difficulties connected with it, which can only be handled 
gradually: and indeed they will occupy our attention during 
a great part of this Book, 


V, T> 1 . 

Biological 

and 

mechanica] 
notions 
of the 
balancing 
of opposed 
forces. 


Scope of 
this Book. 



324 


V, 1, 2. 


Markets 
described 
only pro- 
risionally 
here. 


Definition 
of a 
marJceU 


INTRODUCTORY. ON MARKETS 

Illustrations will be taken now from one class of economic 
problems and now from another, but the main course of the 
reasoning will be kept free from assumptions which specially 
belong to any particular class. 

Thus it is not descriptive, nor does it deal constructively 
with real problems. But it sets out the theoretical backbone 
of our knowledge of the causes which govern value, and 
thus prepares the way for the construction which is to begin 
in the following Book. It aims not so much at the attain- 
ment of knowledge, as at the power to obtain and arrange 
knowledge with regard to two opposing sets of forces, those 
which impel man to economic efforts and sacrifices, and those 
which hold him back. 

We must begin with a short and provisional account of 
markets: for that is needed to give precision to the ideas 
in this and the following Books. But the organization of 
markets is intimately connected both as cause and effect 
with money, credit, and foreign trade; a full study of it 
must therefore be deferred to a later volume, where it will 
be taken in connection with commercial and industrial 
fluctuations, and with combinations of producers and of 
merchants, of employers and employed. 

§ 2. When demand and supply are spoken of in relation 
to one another, it is of course necessary that the markets to 
which they refer should be the same. As Cournot says, 
“Economists understand by the term Market^ not any par- 
ticular market place in which things are bought and sold, 
but the whole of any region in which buyers and sellers are 
in such free intercourse with one another that the prices of 
the same goods tend to equality easily and quickly^.” Or 
again as Jevons says: — “Originally a market was a public 
place in a town where provisions and other objects were 
exposed for sale; but the word has been generalized, so as to 
mean any hodj of persons who are in intimate business 
relations and carry on extensive transactions in any com- 
modity. A great city may contain as many markets as there 
are important branches of trade, and these markets may or 

‘ Recherches sur Us Principes MathSmaiiques de la Thiorie des Richesses^ 
ch. IV. See also above III. it. 7. 



THE SCOPE OF A MARKET 


326 


may not be localized. The central point of a market is the v, i, 3 . 
public exchange, mart or auction rooms, where the traders 
agree to meet and transact business. In London the Stock 
Market, the Corn Market, the Coal Market, the Sugar Market, 
and many others are distinctly localized; in Manchester the 
Cotton Market, the Cotton Waste Market, and others. But 
this distinction of locality is not necessary. The traders 
may be spread over a whole town, or region of country, and 
yet make a market, if they are, by means of fairs, meetings, 
published price lists, the post-office or otherwise, in close 
communication with each other^.” 

Thus the more nearly perfect a market is, the stronger 
is the tendency for the same price to be paid for the same 
thing at the same time in all parts of the market: but of 
course if the market is large, allowance must be made for 
the expense of delivering the goods to diflterent purchasers; 
each of whom must be supposed to pay in addition to the 
market price a special charge on account of delivery^. 

§ 3. In applying economic reasonings in practice it is Boundaries 
often difficult to ascertain how far the movements of supply market, 
and demand in any one place are influenced by those in 
another. It is clear that the general tendency of the 
telegraph, the printing-press and steam traffic is to extend 
the area over which such influences act and to increase their 
force. The whole Western World may, in a sense, be re- instances 
garded as one market for many kinds of stock exchange 
securities, for the more valuable metals, and to a less extent "markets, 
for wool and cotton and even wheat; proper allowance being 
made for expenses of transport, in which may be included taxes 
levied by any customs houses through which the goods have 
to pass. For in all these cases the expenses of transport, 
including customs duties, are not sufficient to prevent buyers 
from all parts of the Western World from competing with 
one another for the same supplies. 

There are many special causes which may widen or General 
narrow the market of any particular commodity: but nearly 

* Theory of Poliiical Economy y ch. iv. 

* Thus it is common to see the prices of bulky goods quoted as delivered “free 
on board” (f. o. b.) any vessel in a certain port, each purchaser having to make 
his own reckoning for bringing the goods home. 



326 


INTRODUCrrOEY. ON MARKETS 


V. t, 4 . 

affect the 
extent 
of the 
market for 
a thin?. 
Suitability 
for grading 
and 

sampling. 


Porta- 

bility. 


The 

conditions 
of highly 
organized 
markets 


illustrated 
by refer- 
ence to 
stock 

exchanges. 


all those things for which there is a very wide market are in 
universal demand, and capable of being easily and exactly 
described. Thus for instance cotton, wheat, and iron satisfy 
wants that are urgent and nearly universal. They can 
be easily described, so that they can be bought and sold 
by persons at a distance from one another and at a distance 
also from the commodities. If necessary, samples can be 
taken of them which are truly representative: and they can 
even be “graded,” as is the actual practice with regard to 
grain in America, by an independent authority; so that 
the purchaser may be secure that what he buys will come 
up to a given standard, though he has never seen a sample 
of the goods which he is buying and perhaps would not 
be able himself to form an opinion on it if he did^. 

Commodities for which there is a very wide market must 
also be such as will bear a long carriage : they must be some- 
what durable, and their value must be considerable in pro- 
portion to their bulk. A thing which is so bulky that its 
price is necessarily raised very much when it is sold far away 
from the place in which it is produced, must as a rule have a 
narrow market. The market for common bricks for instance 
is practically confined to the near neighbourhood of the 
kilns in which they are made: they can scarcely ever bear 
a long carriage by land to a district which has any kilns of 
its own. But bricks of certain exceptional kinds have mar- 
kets extending over a great part of England. 

§ 4. Let us then consider more closely the markets for 
things which satisfy in an exceptional way these conditions 
of being in general demand, cognizable and portable. They 
are, as we have said, stock exchange securities and the more 
valuable metals. 

Any one share or bond of a public company, or any bond 
of a government is of exactly the same value as any other 
of the same issue : it can make no difference to any purchaser 

* Thus the managers of a public or private “elevator/* receive grain from 
a farmer, divide it into different grades, and return to him certidcates for as 
many bushels of each grade as he has delivered. His grain is then mixed with 
those of other farmers; his certiBcates are likely to change hands several times 
before they reach a purchaser who demands that the grain shall be actually 
delivered to him; and little or none of what that purchaser receives may have 
come from the farm of the original recipient of the certificate. 



HIGHLY ORGANIZED MARKETS 


327 


which of the two he buys. Some securities, principally those v, i, 4. 
of comparatively small mining, shipping, and other companies, 
require local knowledge, and are not very easily dealt in 
except on the stock exchanges of provincial towns in their 
immediate neighbourhood. But the whole of England is one 
market for the shares and bonds of a large English railway. 

In ordinary times a dealer will sell, say. Midland Railway 
shares, even if he has not them himself; because he knows 
they are always coming into the market, and he is sure to be 
able to buy them. 

But the strongest case of all is that of securities which 
are called ^'international;” because they are in request in 
every part of the globe. They are the bonds of the chief 
governments, and of very large public companies such as 
those of the Suez Canal and the New York Central Railway. 

For bonds of this class the telegraph keeps prices at almost 
exactly the same level in all the stock exchanges of the 
world. If the price of one of them rises in New York or 
in Paris, in London or in Berlin, the mere news of the 
rise tends to cause a rise in other markets; and if for any 
reason the rise is delayed, that particular class of bonds 
is likely soon to be offered for sale in the high priced market 
under telegraphic orders from the other markets, while dealers 
in the first market will be making telegraphic purchases in 
other markets. These sales on the one hand, and purchases 
on the other, strengthen the tendency which the price has to 
seek the same level everywhere; and unless some of the 
markets are in an abnormal condition, the tendency soon 
becomes irresistible. 

On the stock exchange also a dealer can generally make 
sure of selling at nearly the same price as that at which he 
buys; and he is often willing to buy first class stocks at a 
half, or a quarter, or an eighth, or in some cases even a six- 
teenth per cent, less than he offers in the same breath to sell 
them at. If there are two securities equally good, but one 
of them belongs to a large issue of bonds, and the other to a 
small issue by the same government, so that the first is con- 
stantly coming on the market, and the latter but seldom, 
then the dealers will on this account alone require a larger 



328 


V, I, 5. 


The world 
market 
for the 
precious 
metals. 


Putting 
aside 
cases of 
retail 
dealing) 


INTRODUCTORY. ON MARKETS 

\ 

margin between their selling price and their buying price in 
the latter case than in the former^. This illustrates well the 
great law, that the larger the market for a commodity the 
smaller generally are the fluctuations in its price, and the 
lower is the percentage on the turnover which dealers charge 
for doing business in it. 

Stock exchanges then are the pattern on which markets 
have been, and are being formed for dealing in many kinds 
of produce which can be easily and exactly described, are 
portable and in general demand. The material commodities 
however which possess these qualities in the highest degree 
are gold and silver. For that very reason they have been 
chosen by common consent for use as money, to represent the 
value of other things: the world market for them is most 
highly organized, and will be found to offer many subtle 
illustrations of the actions of the laws which we are now 
discussing. 

§ 5. At the opposite extremity to international stock 
exchange securities and the more valuable metals are, firstly, 
things which must be made to order to suit particular 
individuals, such as well-fitting clothes; and, secondly, perish- 
able and bulky goods, such as fresh vegetables, which can 
seldom be profitably carried long distances. The first can 
scarcely be said to have a wholesale market at all; the 
conditions by which their price is determined are those of 
retail buying and selling, and the study of them may be 
postponed^. 


* In the case of shares of very small and little known companies, the difference 
between the price at which a dealer is willing to buy and that at which he will sell 
may amount to from five per cent, or more of the selling value. If he buys, he 
may have to carry this security a long time before he meets with any one who 
comes to take it from him, and meanwhile it may fall in value: while if he 
undertakes to deliver a security which he has not himself got and which does not 
come on the market every day, he may be unable to complete his contract without 
much trouble and expense. 

* A man may not trouble himself much about small retail purchases: he may 
give half-a-crown for a packet of paper in one shop which he could have got 
for two shillings in another. But it is otherwise with wholesale prices. A 
manufacturer cannot sell a ream of paper for six shillings while his neighbour is 
selling it at five. For those whose business it is to deal in paper know almost 
exactly the lowest price at which it can be bought, and will not pay more than 
this. The manufacturer has to sell at about the market price, that is at about the 
price at which other manufacturers are selling at the same time. 



LOCAL MARKETS 


329 


There are indeed wholesale markets for the second class, v, i, 5. 
but they are confined within narrow boundaries; we may find wei^ssto 
our typical instance in the sale of the commoner kinds of ® 
vegetables in a country town. The market-gardeners in the 
neighbourhood have probably to arrange for the sale of their narrow^ 
vegetables to the townspeople with but little external inter- ’ 
ference on either side. There may be some check to extreme 
prices by the power on the one side of selling, and on the 
other of buying elsewhere ; but under ordinary circumstances 
the check is inoperative, and it may happen that the dealers 
in such a case are able to combine, and thus fix an artificial 
monopoly price ; that is, a price determined with little direct 
reference to cost of production, but chiefly by a consideration 
of what the market will bear. 

On the other hand, it may happen that some of the 
market-gardeners are almost equally near a second country is subject 
town, and send their vegetables now to one and now to the MuencTs^ 
other; and some people who occasionally buy in the first 
town may have equally good access to the second. The least 
variation in price will lead them to prefer the better market; 
and thus make the bargainings in the two towns to some 
extent mutually dependent. It may happen that this second 
town is in close communication with London or some other 
central market, so that its prices are controlled by the prices 
in the central market; and in that case prices in our first 
town also must move to a considerable extent in harmony 
with them. As news passes from mouth to mouth till a 
rumour spreads far away from its forgotten sources, so even 
the most secluded market is liable to be influenced by changes 
of which those in the market have no direct cognizance, 
changes that have had their origin far away and have spread 
gradually from market to market. 

Thus at the one extreme are world markets in which com- 
petition acts directly from all parts of the globe ; and at the 
other those secluded markets in which all direct competition 
from afar is shut out, though indirect and transmitted com- 
petition may make itself felt even in these; and about midway 
between these extremes lie the great majority of the markets 
which the economist and the business man have to study. 



330 


INTRODUCTORY. ON MARKETS 


V, 1,6. 

Limita* 
tions of 
market 
with 
regard 
to time 
affect the 
nature of 
the causes 
of which 
we have 
to take 
account. 


§ 6. Again, markets vary with regard to the period of 
time which is allowed to the forces of demand and supply to 
bring themselves into equilibrium with one another, as well 
as with regard to the area over which they extend. And this 
element of Time requires more careful attention just now 
than does that of Space. For the nature of the equilibrium 
itself, and that of the causes by which it is determined, 
depend on the length of the period over which the market is 
taken to extend. We shall find that if the period is short, 
the supply is limited to the stores which happen to be at 
hand: if the period is longer, the supply will be influenced, 
more or less, by the cost of producing the commodity in 
question; and if the period is very long, this cost will in its 
turn be influenced, more or less, by the cost of producing the 
labour and the material things required for producing the 
commodity. These three classes of course merge into one 
another by imperceptible degrees. We will begin with the 
first class; and consider in the next chapter those temporary 
equilibria of demand and supply, in which ‘'supply’’ means 
in effect merely the stock available at the time for sale in 
the market; so that it cannot be directly influenced by the 
cost of production. 



CHAPTER IL 

TEMPORARY EQUILIBRIUM OF DEMAND AND SUPPLY. 

§ 1. The simplest case of balance or equilibrium between v, n, i. 
desire and effort is found when a person satisfies one of his a simple 
wants by his own direct work. When a boy picks black- 
berries for his own eating, the action of picking is probably dasi>rand 
itself pleasurable for a while; and for some time longer theeffort*- 
pleasure of eating is more than enough to repay the trouble 
of picking. But after he has eaten a good deal, the desire 
for more diminishes; while the task of picking begins to 
cause weariness, which may indeed be a feeling of monotony 
rather than of fatigue. Equilibrium is reached when at last 
his eagerness to play and his disinclination for the work of 
picking counterbalance the desire for eating. The satisfaction 
which he can get from picking fruit has arrived at its maxi- 
mum: for up to that time every fresh picking has added more 
to his pleasure than it has taken away; and after that time 
any further picking would take away from his pleasure more 
than it would add^. 

In a casual bargain that one person makes with another, inacaauai 
as for instance when two backwoodsmen barter a rifle for a there u 
canoe, there is seldom anything that can properly be called 
an equilibrium of supply and demand: there is probably 
margin of satisfaction on either side; for probably the one 
would be willing to give something besides the rifle for the 
canoe, if he could not get the canoe otherwise; while the 


* See IV. I. 2, and N6te XII. in the Mathematical Appendix, 



332 


V, II, 2. 


The case of 
systematic 
barter 
may be 
deferred. 


Market 
for unique 
or rare 
things. 


Illustra- 
tion from 
a local 
corn- 
market 
of a true 
though 
temporary 
equi- 
librium. 


TEMPORARY EQUILIBRIUM OF DEMAND AND SUPPLY 

other would in case of necessity give something besides the 
canoe for the rifle. 

It is indeed possible that a true equilibrium may be 
arrived at under a system of barter; but barter, though earlier 
in history than buying and selling, is in some ways more 
intricate; and the simplest cases of a true equilibrium value 
are found in the markets of a more advanced state of 
civilization. 

We may put aside as of little practical importance a class 
of dealings which has been much discussed. They relate to 
pictures by old masters, rare coins and other things, which 
cannot be “graded’’ at all. The price at which each is sold, 
will depend much on whether any rich persons with a fancy 
for it happen to be present at its sale. If not, it will 
probably be bought by dealers who reckon on being able to 
sell it at a profit; and the variations in the price for which 
the same picture sells at successive auctions, great as they 
are, would be greater still if it were not for the steadying 
influence of professional purchasers. 

§ 2. Let us then turn to the ordinary dealings of modern 
life ; and take an illustration from a corn-market in a country 
town, and let us assume for the sake of simplicity that all 
the corn in the market is of the same quality. The amount 
which each farmer or other seller offers for sale at any price 
is governed by his own need for money in hand, and by his 
calculation of the present and future conditions of the 
market with which he is connected. There are some prices 
which no seller would accept, some which no one would 
refuse. There are other intermediate prices which would be 
accepted for larger or smaller amounts by many or all of the 
sellers. Everyone will try to guess the state of the market 
and to govern his actions accordingly. Let us suppose that 
in fact there are not more than 600 quarters, the holders of 
which are willing to accept as low a price as 355. ; but that 
holders of another hundred would be tempted by 365. ; and 
holders of yet another three hundred by 375. Let us suppose 
also that a price of 375. would tempt buyers for only 600 
quarters; while another hundred could be sold at 365., and 



MARKET DAY IN A LOCAL CORN-EXCHANGE 


333 


yet another two hundred at 855. These facts may be put out v, n, 2 . 
in a table thus; — 


At the price 
37s. 
36s. 
35s. 


Holders will be 
willing to sell 
1000 quarters, 
700 
600 


Buyers will be 
willing to buy 
600 quarters. 


700 

900 


Of course some of those who are really willing to take 36s. 
rather than leave the market without selling, will not show 
at once that they are ready to accept that price. And in like 
manner buyers will fence, and pretend to be less eager than 
they really are. So the price may be tossed hither and 
thither like a shuttlecock, as one side or the other gets the 
better in the ‘‘higgling and bargaining” of the market. But 
unless they are unequally matched; unless, for instance, one 
side is very simple or unfortunate in failing to gauge the 
strength of the other side, the price is lilcely to be never very 
far from 305. ; and it is nearly sure to be pretty close to 305. 
at the end of the market. For if a holder thinks that the 
buyers will really be able to get at 305. all that they care to 
take at that price, he will be unwilling to let slip past him 
any offer that is well above that price. 

Buyers on their part will make similar calculations; and 
if at any time the price should rise considerably above 30s. 
they will argue that the supply will be much greater than 
the demand at that price : therefore even those of them who 
would rather pay that price than go unserved, wait; and by 
waiting they help to bring the price down. On the other 
hand, when the price is much below 36s., even those sellers 
who would rather take the price than leave the market with 
their corn unsold, will argue that at that price the demand 
will be in excess of the supply: so they will wait, and by 
waiting help to bring the price up. 

The price of 30s. has thus some claim to be called the true 
equilibrium price: because if it were fixed on at the begin- 
ning, and adhered to throughout, it would exactly equate 
demand and supply (i.e. the amount which buyers were 
willing to purchase at that price would be just equal to that 
for which sellers were willing to take that price) ; and because 



334 


V, II, 3. 


The 

latent as- 
sumption, 
that the 
dealers’ 
willingness 
to spend 
money is 
nearly 
constant 
through- 
out, 


TEMPORARY EQUILIBRIUM OP DEMAND AND SUPPLY 

every dealer who has a perfect knowledge of the circum- 
stances of the market expects that price to be established. 
If he sees the price difiering much from 365. he expects that 
a change will come before long, and by anticipating it he 
helps it to come quickly. 

It is not indeed necessary for our argument that any 
dealers should have a thorough knowledge of the circum- 
stances of the market. Many of the buyers may perhaps 
underrate the willingness of the sellers to sell, with the efEect 
that for some time the price rules at the highest level at 
which any buyers can be found; and thus 500 quarters may 
be sold before the price sinks below 375. But afterwards the 
price must begin to fall and the result will still probably be 
that 200 more quarters will be sold, and the market will close 
on a price of about 365. For when 700 quarters have been 
sold, no seller will be anxious to dispose of any more except 
at a higher price than 365., and no buyer will be anxious to 
purchase any more except at a lower price than 365. In the 
same way if the sellers had underrated the willingness of the 
buyers to pay a high price, some of them might begin to sell 
at the lowest price they would take, rather than have their 
corn left on their hands, and in this case much corn might be 
sold at a price of 355. ; but the market would probably close 
on a price of 365. and a total sale of 700 quarters^. 

§ 3. In this illustration there is a latent assumption 
which is in accordance with the actual conditions of most 
markets; but which ought to be distinctly recognized in order 
to prevent its creeping into those cases in which it is not 
justifiable. We tacitly assumed that the sum which pur- 
chasers were willing to pay, and which sellers were willing to 
take, for the seven hundredth quarter would not be affected 
by the question whether the earlier bargains had been made 
at a high or a low rate. We allowed for the diminution in 
the buyers’ need of corn [its marginal utility to them] as the 
amount bought increased. But we did not allow for any 
appreciable change in their unwillingness to part with money 

^ A simple form of the influence which opinion exerts on the action of dealers, 
and therefore on market price, is indicated in this illustration: we shall be much 
occupied with more complex developments of it later on. 



SOME CAUTIONS AND LIMITATIONS 


336 


[its marginal utility] ; we assumed that that would be prac- v, n, 3. 
tically the same whether the early payments had been at a 
higii or a low rate. 

This assumption is justifiable with regard to most of the 
market dealings with which we are practically concerne